The Attention Economy of Online Advertising
48 Pages Posted: 4 Apr 2019
Date Written: March 31, 2019
Internet users often surf to multiple websites in order to accomplish a single task. When this happens, do these different sites face the right incentives when choosing their advertising policies? We build a model showing that websites are prone both to over-advertise and to misallocate ads across sites. The former problem is analogous to "double marginalization," in price-setting models, whereas the latter, novel distortion, "misplacement," arises because users' attention is not fungible in the same way that money is. Moreover, we show that these two phenomena give rise to a tradeoff: adding competition among certain sites in order to eliminate double marginalization tends to worsen misplacement. We show that this tradeoff plays an important role in the choice facing platforms such as news aggregators of whether to follow a strategy of linking to other sites that produce news or to acquire such content for themselves.
Keywords: Economics of the Internet, Online Advertisement, Two-Sided Markets, Complements, Misplacement, Attention
JEL Classification: L13, L23, D43, M37, L86
Suggested Citation: Suggested Citation