How Allowing a Little Bit of Dissent Helps Control Social Media: Impact of Market Structure on Censorship Compliance

This paper studies the role of market structure in regulatory compliance through a unique empirical example: censorship via content removal by three major live-streaming platforms in China. Based on 30 unexpected sensitive events, I first present reduced-form evidence that the largest platform censored a higher number of keywords and complied faster on average than the smaller platforms. I then develop and estimate a structural model where three platforms compete for users by choosing whether to comply with the government’s censorship requests. By complying immediately, platforms may lose users who prefer to evade censorship by switching out. By delaying compliance, platforms incur a legal cost, however, the delay allows them to attract new users from their competitors who quickly comply with the government’s censorship requests. My counterfactual analysis predicts that if the less compliant small platform were to be shut down or merged with the medium platform, the remaining platforms could comply less often in equilibrium due to increased strategic incentives. This suggests that decentralizing online market power might help an authoritarian government control social media. (JEL: P26, L82, D22)
Keywords: censorship, strategic interaction, market concentration