Exploring the Head Effect in Live Streaming Platforms: A Two-Sided Market and Welfare Analysis

Abstract: We develop a comprehensive theoretical framework to analyze live streaming platforms as two-sided markets, focusing on the head effect where a small subset of elite streamers disproportionately attracts viewer attention. By constructing both static and dynamic models, we capture the interplay between network effects, content quality investments, and platform policies-such as commission structures and traffic allocation algorithms-that drive traffic concentration. Our welfare analysis demonstrates that although short-term consumer utility may benefit from concentrated viewership, long-term content diversity and overall social welfare are adversely impacted. Extensive simulations further validate our models and show that targeted policy interventions can rebalance viewer distribution and mitigate winner-takes-all dynamics. These findings offer actionable insights for platform designers and regulators in the digital economy.