Attention Markets and the Economics of Time Scarcity

If you can capture someone’s attention, advertisers will pay you for access to that attention.  Out of thousands of ads and commercials shown, a viewer will likely make a purchase, thus creating real financial value out of attention.  This principle creates attention markets, which generate increased revenue for firms.  Companies seeking to advertise their wares will pay to get their ads in front of consumers, and websites will compete to sell ad space.  As in any market, the laws of supply and demand [mostly] set the price.

Economics of Attention

Limitless Demand for Attention…

The demand for consumers’ attention is virtually unlimited, encompassing the whole world of commerce.  In a free market, aside from Veblen goods and other luxury and exotic goods, producers want to sell to whomever has enough money to buy.  Thanks to the Internet and improved shipping technology and infrastructure, most markets for goods are now virtually worldwide.  A company making consumer goods in Europe can sell those goods to Internet shoppers in other continents relatively easily, increasing the company’s demand for advertising space in those markets.

…Versus Limited Supply of Attention

However, across the globe, consumers are bound by the same physical constraints on their attention: time.  Even severely Internet-addicted consumers have to sleep sometime, placing a cap on their ability to watch and understand advertisements.  Thus, the elasticity of supply of consumers’ attention is very inelastic.  It cannot change much, regardless of how much it is valued.  Pairing an almost perfectly inelastic supply curve, which has a near-vertical shape, with an increase in demand leads to significant increases in price.  This means that sellers have to pay rapidly increasing amounts to advertise to us.

Economics of Internet Space: 

Fee-for-Use Versus the Value of Consumer Engagement

Traditionally, those seeking entertainment paid per-unit for that entertainment.  If you wanted to see a movie, you paid for a ticket at a movie theater.  Today, however, there is real value in simply getting consumers’ attention.  This is why several streaming entertainment platforms offer lower-cost subscription tiers that show commercials: ad revenue is worth reducing the cost charged to customers.  

While entertainment streaming sites often still charge some fee, albeit reduced, for customers willing to see ads, social media sites typically cost nothing to use.  From Instagram to Tik Tok to X, consumers can see almost unlimited short-form content for free.  The revenue from ad sales to producers entirely covers the cost of running a social media site.  Admittedly, the cost to run a social media platform is much lower than running an entertainment streaming site due to the cost of purchasing the intellectual property rights to movies, TV shows, and music.

Historic Examples: Network Television and Radio

Although attention markets may seem like a new topic in economics, the value of mass consumer attention has long been realized.  Prior to the 1980s, most consumers watched subscription-free network television, which was paid for by ad revenue.  Similarly, radio has always been free for listeners, with regular advertising interspersed among songs, commentary, and other programming.  Even in the pre-Internet era, sellers had sufficient demand for consumer attention that they were willing to pay enough for advertising space to fully fund TV and radio.

The Opportunity Cost of Free Internet Platforms

Monopoly on Attention

While many would argue that a free service should hardly be scrutinized, there are societal opportunity costs to allowing a monopoly to control the vast majority of consumers’ attention.  A digital platform that becomes popular enough to have a monopoly on consumer attention could drastically raise advertising costs on firms due to limited supply.  Because consumer attention is limited by time, any monopoly would result in many sellers being forced out of the attention market due to the high barrier to entry created by advertising prices.  This would result in many sellers failing and multiple markets becoming more consolidated.  Over time, this would result in prices rising across the markets due to lack of competition.

Welfare Implications of Capturing Everyone’s Attention

For those producers who survive the advertising squeeze caused by a monopoly on consumer attention, higher selling prices - combined with stable costs of production - result in greater producer surplus.  Simultaneously, consumers would suffer loss of consumer surplus due to the higher market price; fewer would get “a deal” on goods because their individual demand would no longer be greater than the price.  The exiting of some producers from markets due to high advertising costs would result in some deadweight loss by restricting supply: some consumers who would have purchased the good or service are no longer able to.

In the long run, the loss of some producers in various markets due to a monopoly on consumers’ attention will have negative effects on innovation and productivity.  The handful of firms that can afford to advertise with the monopoly platform will have little incentive to innovate due to high profits from consumer attention.  If consumers only know of a few sellers in each market, those sellers have less need to compete.  This would result in stagnant economic growth, harming all consumers and most producers.

Asymmetric Information and Market Failure

One condition that can lead to market failure is asymmetric information, which occurs when one party has difficulty determining the accuracy of information provided by another.  A monopoly on consumers’ attention could drastically increase asymmetric information by reducing consumers’ ability to find alternative sources of information to compare or verify claims.  The few advertisers who can afford the monopolist’s fees would be able to make claims with relative impunity; who can afford to publish information to the contrary?

Producers would have an incentive to use their domination of consumers’ attention to erase claims that they were innovating less or providing lower quality goods and services due to lack of competition.  They could convince the monopolist to collude in this regard by pointing out that there are no other firms that can pay for advertising: “if we go under, you lose all that guaranteed ad revenue.  We don’t have any other competitors that can pay close to what we can.”  This “locks in” the adversity of asymmetric information due to an attention monopoly.