Will Competition Reduce Attention Costs in Social Media?
17 Pages Posted: 1 Apr 2022 Last revised: 27 Sep 2022
Date Written: March 29, 2022
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: Suggested Citation