Unintended Consequences of Platform Monetization on Digital Cultural Markets : Evidence from a Natural Experiment on Goodreads

How can a platform capture the value it creates for its users while fostering a diverse and inclusive marketplace? This study explores the potential consequences of monetizing a prominent promotional program within a platform market for book promotions, specifically the Giveaways program on Goodreads.com. Participation in this program was free until January 2018, when Goodreads introduced a policy that imposed a flat fee on authors or publishers who wish to promote their books in this program. We employ large-scale, fine-grained data to examine responses from both the supply side and the demand side of the two-sided market to this monetization strategy. Our results suggest that this policy results in a more concentrated book supply in the promotional market, increasing the market share of major and established publishers and authors at the expense of smaller entities with fewer resources. The policy also reduces book diversity in the marketplace, with a few popular genres becoming more dominant while niche genres diminish further. These supply-side changes ultimately impact consumers, as the policy exacerbates the effect of price promotion on word of mouth (i.e., increased review volume but lower valence). An analysis of textual reviews and rating dispersion reveals that consumer-book mismatch drives this consumer response. Our findings carry policy implications for platform owners and policymakers: to establish and maintain a healthy ecosystem, platforms need to mitigate potential undesirable effects from monetization strategies by implementing more flexible and nuanced incentive structures for various participants