We examine the strategic considerations and effects of product placement services in digital content aggregators, focusing in particular on Spotify’s “Discovery Mode”. Discovery Mode introduces bias in users’ consumption bundle that content providers pay through discounted royalties, and triggers users to actively adjust to it in response. The platform’s ability to manipulate consumption bundles (and adjust users’ participation fee consistently) leads to promotion of the cheapest content available and degradation of users’ effective consumption bundles. In equilibrium, Discovery Mode can either benefit or harm the provider of the cheapest content to stream, with the harm arising whenever Discovery Mode threatens to revert preexisting bias against said provider. Importantly, Discovery Mode always forces users to costly adjust their consumption more, unequivocally generating loss of efficiency in the market. We further highlight an indirect increase in the risk of market concentration stemming from the platform’s ability to bias consumption.
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