DP16231 Attention Oligopoly

Author(s): Andrea Prat, Tommaso Valletti
Publication Date: June 2021
Keyword(s): Digital Platforms, mergers, targeted advertising
JEL(s):
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16231

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.