User-Generated Content, Strategic Moderation, and Advertising

On social media platforms, advertisers can be exposed to "brand safety issues" if they are associated with unsafe content. In this paper, we study the incentive of an ad-funded platform to curb the presence of unsafe content. On the one hand, moderating unsafe content reduces the risk for advertisers from being present on social media platforms; on the other hand, moderating unsafe content can change users' participation on the platform and, in turn, affect advertisers' monetization. This indirect 'eyeball effect' can be either positive or negative and is key for the platform's design of its content moderation policy. We identify conditions for the platform not to moderate unsafe content and how the optimal moderation policy depends on the risk faced by advertisers. We also study the intended and unintended effects of a policy that mandates social media platforms to moderate (more) unsafe content. We show that while it can benefit advertisers, users may be worse off because of the higher amount of ads they are exposed to. Finally, we study how social media platform competition and the introduction of taxes on social media activity can distort the platform's moderation strategies.