The Economics of Attention Markets
44 Pages Posted: 2 Oct 2017 Last revised: 1 Nov 2017
Date Written: October 31, 2017
This paper describes the fundamental economic features of the attention market in which platforms acquire time from consumers and sell access to that time to advertisers who want to deliver messages to those consumers. It introduces an economic framework for analyzing the allocation of time and shows that the attention market is an enormous part of the economy based on the time contributed to it. In 2016, American adults spent 437 billion hours mainly consuming content on ad-supported media based; that time was worth $7.1 trillion using the average after-tax hourly wage rate and $2.8 trillion using the average after-tax minimum wage rate. The paper shows that the exchange of content for time internalizes externalities between consumers and advertisers and that the use of content to harvest attention results in significant economic efficiencies. It then presents a simple model of the attention market, based on platforms competing for scarce attention and selling into a competitive market for advertising, and shows that this model is broadly consistent with key empirical regularities. Lastly, the paper shows that the attention market likely generates considerable consumer surplus from content creation as well as economic efficiency from intensifying competition through the delivery of advertising messages, many of which consumers would have avoided if they could.
Keywords: advertising, ad-supported media, newspapers, television, attention markets, online platforms, free Internet services, digital platforms, consumer surplus for free goods, attention economy
JEL Classification: D13, D12, D21, D22, D23, D40, D85, D83, J22, K21, L10, L86
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