Working Paper: CEPR ID: DP16231
Authors: Andrea Prat; Tommaso Valletti
Abstract: We model digital platforms as attention brokers that have proprietary information about their users' product preference and sell targeted ad space to retail product industries. Retail producers - incumbents or entrants - compete for access to this attention bottleneck. We discuss when increased concentration among attention brokers results in a tightening of the attention bottleneck, leading to higher ad prices, fewer ads being sold to entrants, and lower consumer welfare in the product industries. The welfare effect is characterized in terms of patterns of individual usage across platforms. A merger assessment that relies on aggregate platform usage alone can be highly biased.
Keywords: digital platforms; mergers; targeted advertising
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased concentration among attention brokers (G24) | tightening of the attention bottleneck (D87) |
| tightening of the attention bottleneck (D87) | higher ad prices (D49) |
| tightening of the attention bottleneck (D87) | fewer ads sold to entrants (D44) |
| increased concentration among attention brokers (G24) | higher ad prices (D49) |
| increased concentration among attention brokers (G24) | fewer ads sold to entrants (D44) |
| tightening of the attention bottleneck (D87) | reduced market entry (D40) |
| reduced market entry (D40) | higher prices (D49) |
| reduced market entry (D40) | less product variety in retail product industries (L81) |
| higher ad prices (D49) | negative impact on consumer welfare (F61) |
| fewer ads sold to entrants (D44) | negative impact on consumer welfare (F61) |
| less product variety in retail product industries (L81) | negative impact on consumer welfare (F61) |