Strategic choice of KOL and AI live-streaming considering network externality of differentiated firms

The rapid development of network technology and live-streaming sales has facilitated the emergence of artificial intelligence digital human (AI) live-streaming technology, posing new challenges to traditional key opinion leader (KOL) live-streaming, particularly in highly competitive market environments. In this paper, we develop a game-theoretic model to examine the strategic choice between KOL and AI live-streaming for two firms with differing market potentials (limited-potential and high-potential), taking network externality into account. Our analysis reveals that when network externality is insignificant, the limited-potential firm continues to rely on KOL live-streaming. In contrast, the high-potential firm shifts its preference from KOL live-streaming to AI live-streaming as the KOL commission rate increases, thereby intensifying market competition. However, an increase in network externality substantially enhances the attractiveness of AI live-streaming for both types of firms while simultaneously alleviating market competition. Furthermore, the competing firms’ choices of live-streaming strategies may lead to a prisoner’s dilemma, in which KOL (AI) live-streaming is the dominant strategy, whereas AI (KOL) live-streaming would make both firms better off. Additionally, firms’ selection of optimal live-streaming strategies can maximize consumer surplus, thereby enhancing social welfare and promoting a positive image of corporate social responsibility encouraged by governmental entities. This “win-win-win-win” outcome for the two firms, consumers, and the government can potentially be achieved through KOL live-streaming. In this context, a favorable social environment can be fostered, enabling all participants to collaborate in expanding opportunities.