A Model of the Attention Economy: Data, Platforms, and Discovery

Abstract

This paper develops a dynamic model of the attention economy featuring two interlinked markets: a product market, where consumers have limited awareness of firms, and an attention market, where platforms attract attention by investing in free services (e.g., social media, streaming, podcasts) and sell targeted ads using data on consumer preferences. The model provides a tractable framework in which platform investment, ad-driven discovery, product demand, and ad revenue are jointly determined. The effects of data and interoperability policies can reverse over time, platform quality may be inefficiently high or low, and the rise of data-rich digital advertising can coincide with a declining ad revenue-to-GDP ratio. (JEL D43, D44, D58, D83, L86, M37)