This paper – which can be found here – describes the fundamental economic features of the markets where attention platforms acquire time from consumers, and then sell access to that time to advertisers who want to deliver messages to those consumers – and introduces an economic framework that should assist in the application of competition law in these markets.
It is structured as follows:
- Section II introduces an economic framework for analysing the allocation of time by consumers, which is one of the main competitive vectors in certain platform markets. It begins by describing the amount of time that American consumers spend consuming content on ad-supported media. It then relies on the economic theory of household production to analyse the value to consumers of the time they spend on such media. In the basic model, people derive utility from a range of household activities, each of which consists of a combination of market goods and time spent on them. People can also engage in market work and earn income (i.e. labour). People must allocate their scarce time between household activities and labour.
It is common to decompose the allocation of time into market labour, household production, and leisure. As a rough approximation, market labour provides the income necessary for buying the market goods that are inputs into the commodities people consume; people don’t like household work but it can be more efficient to do it themselves than hire others; and people enjoy spending time on leisure activities. Time is typically a substitute for market goods used for household work, and a complement to market goods used for leisure activities.
This basic model has been used extensively in economics to study secular changes in labour supply, household work, and leisure. The economic theory of time allocation provides insights into the value of time invested in leisure activities – the paper describes this in some detail, and I invite you to read this section if you are interested on the topic. The bottom line is that this model allows one to calculate the value of the time that people spend consuming ad-supported content. The author estimates that American adults spent 437 billion hours consuming ad-supported content in 2016, which was worth at least USD $7.1 trillion to them.
- Section III shows how attention platforms internalize externalities between consumers and advertisers. Content plays a critical role in this market because it is an efficient method to acquire attention from consumers, insert advertising messages, and match senders and receivers of advertising messages. Advertisers usually value sending messages more than consumers value receiving them: consumers are unlikely to pay to receive ads, and might go out of their way to avoid them. While is theoretically possible for advertisers to pay consumers to receive ads, this is extremely hard to achieve in practice.
Attention platforms devise side payments that result in efficient exchanges of attention and advertising – mainly through their content. For example, newspapers pay consumers for their attention by providing news and entertainment (i.e. content). Content provides a setting that is conducive to attract attention to ads; it provides significant scale economies due to how easy it is to reproduce and distribute; and it facilitates matching between consumers and advertisers, since some consumers are likely to be more attracted to certain types of content.
- Section IV shows the importance of the nature of time allocation in shaping competition among attention platforms. It has a bit of economic modelling, but the main takeaways are easy to put down in simple English. Bottom line, time is the defining feature of attention markets. These markets are multisided because the market for selling attention to advertisers is linked to a market for buying attention from consumers. Attention platforms compete to get consumers to spend time with them so that, during that time, they can insert ads that will attract some of their consumers’ attention, and then compete to sell advertisers access to consumers.
This explains why so many of the services provided to consumers by attention platforms are free. Platforms pay for the consumers’ attention with content, which consumers jointly consume with time. In this competition for consumer attention, platforms differentiate their content offerings to attract attention away from other platforms. Importantly, this differentiation means that some platforms look for specific types of attention (i.e. ballet fans may not be the same public as wrestling, pace the similarities), which will correspond to different advertising segments. This theory is then matched with empirical studies that are said to support it.
- Section V discusses social welfare. It is argued that attention markets increase social welfare in two different ways. First, content from attention platforms is the source of most entertainment that people consume, and thereby generates consumer surplus. Relying on the theory of household consumer described above, consumers placed a value, based on their time commitment, of at $7.1 trillion dollars for the content they consumed in 2016 based on the average after-tax wage rate. That rate reflects, in effect, their minimum willingness to pay, in time, for content. Recent empirical estimates are at least suggestive that the consumer surplus on top of this is substantial. Attention platforms also generate producer surplus for advertisers: after all, when they decide to advertise in an attention platform they must believe that the value of presenting their messages there exceeds the cost.
Second, attention markets facilitate the flow of information between producers and consumers, and thereby increase static and dynamic competition among firms – including for the introduction of new products. The widespread use of advertising by sellers, dating back millennia, suggests that advertising is an efficient element of competitive markets. A number of empirical studies are then presented to demonstrate that prices are lower when there is advertising.
- Section VI concludes with some observations on the relationship between the economics of attention markets and the traditional economics’ literature on advertising. First, the economics of attention markets focuses on time as the key competitive vector, since time is what is being bought and sold. Second, this literature pays greater attention to the role of content in acquiring time, embedding advertising messages, and operating efficient attention platforms. Third, the economics of attention markets are concerned with the scarcity of time for individual consumers, and for the market overall, since that has implications for dynamic competition among attention platforms. The traditional economics of advertising, by contrast, focuses mainly on whether advertising softens or intensifies competition. The traditional models, moreover, generally ignore the role of time in the exchange between consumers, platforms, and advertisers. These models cannot provide reliable economic insights on the impact of advertising on social welfare, since they do not account for the most economically significant portion of the value being exchanged.
Comment: While not directly concerned with the delineation of a legal test, this is a piece of work ripe with consequences for the legal analysis of platforms under competition law. If the test of consumer welfare concerns attention-time, it creates much wider product markets than usually identified in competition law. The author seems to be well aware of this. However, if welfare is time, and each consumer has a limited amount of time to spend, then this means that each minute is precious. This would open the door – methinks – to concepts of competitive harm which would be extremely hard to distinguish from rules against misleading advertising or consumer protection – not unlike the Facebook case in Germany. A whole world of exploitative abuses would open before our very eyes, relying on hard-to-measure concepts related to the wasting of time. Not for nothing did that famed scourge of media platforms Tim Wu advocate for a similar change in focus towards attention markets in a paper reviewed here on 21 April 2017.