Two-sided markets with bargaining over content - the monopoly case

A TV platform provides content to viewers and viewers to advertising producers. We study platform pricing and the supply of an essential type of content when there are two-sided network effects and the platform bargains over the contract terms with a content supplier. We show that when the content supplier holds all bargaining power in the negotiations with the platform both the level of content as well as the advertising level are set at socially inefficient levels. Content is generally undersupplied, whereas there may be too much or too little advertising. Relocating the bargaining power from the content supplier to the platform owner will restore an efficient level of content but this may ease or aggravate the inefficiencies related to the amount of commercials. Bundling of content restores efficient levels of content supply, but the inefficiencies related to over- or undersupply of commercials still remain.