Video platforms’ advertising and pricing decisions in the presence of derivative videos

Derivative videos generated based on copyright videos are a common type of user-generated content (UGC) on today’s video platforms. Given the role of derivative videos in resolving consumers’ uncertainty about the quality of paid copyright videos, and their potential to generate advertising revenue, we develop a game-theoretic model to investigate a video platform’s optimal joint-decisions on pricing and advertising to maximize the utilization of derivative videos. We find that including advertisements into derivative videos to derive advertising revenue is not always advantageous for platforms. Under certain conditions, it is more beneficial for platforms to exclude advertisements from derivative videos. The presence of a derivative video may not affect the optimal price of the copyright video. Furthermore, a higher consumer initial quality expectation for the copyright video does not necessarily lead to a greater platform profit in the presence of a derivative video.