33 Pages Posted: 21 Jun 2018 Last revised: 31 Jan 2019
Date Written: January 25, 2019
We model social media platforms that have proprietary information about their users and sell targeted ad space to producers. Producers, who can be incumbents or entrants, compete for the attention of final consumers. We characterize equilibrium producer entry and consumer welfare in terms of ownership and consumption patterns in the social media industry. We show how the welfare effect of a platform merger can be expressed in terms of observable platform consumption. Relying on usage shares alone, but not on usage overlaps, can result in substantial bias in a merger assessment. We illustrate the findings with usage data from Facebook, Instagram, and Twitter.
Keywords: media mergers, attention oligopoly
JEL Classification: L13
Suggested Citation: Suggested Citation