Digital Content Provision Under Virtual Tipping

ABSTRACT The proliferation of digital technology has introduced innovative engagement features between content producers and viewers. Virtual tipping, a novel form of revenue generation, allows viewers to award producers with virtual currency in real‐time. In this paper, we develop a model where content producers generate revenue from both advertisements and virtual tips, aiming to explore how virtual tipping influences the differentiation of digital content. Unlike previous models, we assume that content producers make prior product decisions before entering the platform and can adjust their content in response to platform incentives and viewer demand. Content producers face a trade‐off between expanding market coverage for higher advertisement revenue and prioritizing viewer satisfaction for increased virtual tipping. We derive a platform‐streamer contract involving two incentive devices: a share of virtual tipping revenue and mediated search. Our results suggest that virtual tipping reduces content differentiation, except in cases where differentiation is already minimal. Consequently, virtual tipping encourages both the platform and content producers to prioritize viewer satisfaction, which can be welfare improving. However, the integration of mediated search amplifies virtual tipping's downward force on differentiation, which may counteract the welfare gains.