On click-fraud under pro-rata revenue sharing rule

Abstract

Click-fraud is commonly seen as a key vulnerability of pro-rata revenue sharing rule on music streaming platforms, whereas user-centric is largely immune. This paper develops a tractable non-cooperative model in which artists can purchase fraud activity that generates undetectable fake streams up to a technological limit. We defend pro-rata by showing that it is fraud-robust: when fraud technology is weak, honesty is a strictly dominant strategy, and an efficient fraud-free equilibrium obtains; when fraud technology is strong, a unique fraud equilibrium arises, yet aggregate fake streams remain bounded. Although fraud is inefficient, the resulting redistribution may improve fairness in some cases. To mitigate fraud without abandoning pro-rata, we introduce a parametric weighted rule that interpolates between pro-rata and user-centric, and characterize parameter ranges that restore a fraud-free equilibrium under technology constraint. We also discuss implications of Spotify's modernized royalty system for fraud incentives.