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Matthew MITCHELL - UNIVERSITY OF TORONTO

"Selling Checkmarks"

Abstract :
We study a social media platform that is monetized through selling “verified” status to content providers. Providers on the platform come in two types, ones that are valued by content consumers and ones that are not. Providers value attention from consumers ; consumer attention depends on a producer’s “verified” status and on the equilibrium mix of providers with that status. We show that, absent other asymmetries between producers, price discrimination is necessary for the platform to benefit from selling status. Sometimes this price discrimination takes the form of free status for providers valued by consumers, as is observed on some platforms. Selling status may make consumers worse off, and more prevalence of valuable types in the aggregate does not necessarily improve consumer welfare nor total welfare when status is for sale. We therefore identify a potential role for regulation, and highlight cases where it might be especially relevant.