Dear Colleagues,
Our next virtual seminar in the Entrepreneurship and Innovation Policy Research series is Wednesday, September 17from 11:00-12:00 ET. Carmelo Cennamo (Copenhagen Business School) - will present "User attention and targeted advertising in social media platforms: When does attention brokerage benefit users?" Abstract is below. Click the link HERE to register for the September 17 seminar.
We hope you join us!
- Tim Folta (UCONN), Maryann Feldman (ASU), and Supradeep Dutta (Rutgers U)
Abstract: Social media platforms, as attention brokers, face a fundamental tension between the users they serve and the advertisers they depend on. We develop a formal model to investigate how a platform's ability to broker user attention impacts pricing, advertising strategies, and the welfare of all participants. Our findings reveal that the welfare implications of attention brokerage are critically contingent on the platform's model. On platforms offering high standalone benefits, such as Facebook, we find a fundamental misalignment of interests. While platform and advertiser profits grow with enhanced attention-brokering, user welfare follows an inverted-U shape, declining as users are exposed to a greater volume of lower-quality and irrelevant ads. This suggests a potential for user over-exploitation. In contrast, on platforms with negligible standalone benefits, like Pinterest, market forces align the incentives of all parties. Here, the welfare of users, advertisers, and the platform all increase monotonically with the platform's brokering ability. This research offers a novel explanation for the persistence of irrelevant ads, rooting it in this platform-mediated incentive misalignment. Furthermore, we derive clear policy implications, showing that the optimal level of attention-brokering a regulator would choose depends on the specific welfare standard being maximized. Our results demonstrate that regulatory approaches must be nuanced, as interventions appropriate for platforms with high standalone benefits may be counterproductive for others.
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