Standard Plans or Membership Bundles? Competitive Paid Membership Strategies for Video Platforms

Video platforms have increasingly been observed forming partnerships with other service providers (e.g., digital music service provider) through the launch of membership bundles. This paper analytically investigates such strategic choices of competing video platforms regarding two paid membership strategies, i.e., standard plans and membership bundles. In the basic model, the chosen service provider is assumed to exhibit similar horizontal attributes as the video platform. Therefore, compared to standard plans, membership bundles reinforce the intensity of mismatches, even though they bring incremental benefits. Our study unveils the following intriguing findings. First, when the incremental value consumers receive from membership bundles is sufficiently small (large), both platforms prefer to adopt standard plans (membership bundles). Second, in the scenario where the incremental value is moderate, both platforms can be better off by adopting asymmetric membership strategies if network effects are strong. Furthermore, we demonstrate that the provision of membership bundles will intensify platform competition. This result implies that the provision of membership bundles may hurt platforms' profitability when network effects are very weak and the incremental value is not very large. However, given that membership bundles can increase social welfare, policymakers may encourage their applications. In the model extensions, the robustness of our results is tested. We allow for alternative preference correlations across bundled services, endogenize the revenue-sharing rate via the incremental value created by bundling, and introduce asymmetric intensities of network effects for different plans.