Will Competition Reduce Attention Costs in Social Media?

17 Pages Posted: 1 Apr 2022 Last revised: 27 Sep 2022

See all articles by Francesco Parisi

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Ram Singh

Delhi School of Economics - University of Delhi

Date Written: March 29, 2022

Abstract

Unlike other monopolies, social media networks almost uniformly give access to their services for free to everybody. Economists refer to these markets as “zero-price markets.” The main, and often sole, source of revenue for the network owners comes from fees that are paid by advertisers. Network owners offer access to users in exchange for users’ attention to advertisements. Economists refer to these implicit market exchanges under the heading of “attention economy.” Regulatory solutions and antitrust remedies have been considered to foster consumer protection in the market economy. This paper investigates the conditions under which an increase in competition in the social media market would reduce the attention cost problem highlighted in the literature. Contrary to intuition, this paper shows that an increase in competition in the social media market could increase, rather than decrease, the attention costs imposed on users. Social media networks with monopoly power charge higher prices to advertisers to maximize their profit. Competition in the social media industry would lead to lower (competitive) prices for advertisers which lead to more advertising and higher attention costs imposed on users.

Keywords: Attention Economy; Social Media; Network Effects; Advertising

JEL Classification: K21, L10, D40

Suggested Citation

Parisi, Francesco and Singh, Ram, Will Competition Reduce Attention Costs in Social Media? (March 29, 2022). Minnesota Legal Studies Research Paper No. 22-03, Available at SSRN: https://ssrn.com/abstract=4069468 or http://dx.doi.org/10.2139/ssrn.4069468

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

Ram Singh

Delhi School of Economics - University of Delhi ( email )

Delhi School of Economics
University of Delhi, North Campus
Delhi, Delhi 110007
India

HOME PAGE: http://www.econdse.org/ramsingh

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