The Attention Economy of Search and Web Advertising

Abstract

Two types of online advertising, search and display, use strikingly different techniques to target and attract consumers. Despite these differences, both compete for a single scarce resource: user attention. We analyze the competition between search engines (SEs) and content-based websites (CBWs) to transform attention into revenue. We show that, since search results and web content are often complementary goods for a user, SEs and CBWs face two distinct coordination problems when designing their advertising strategies. The first is the classic problem of double marginalization among sellers of complements. The second potential problem is new: the need to efficiently allocated demands to a given user for her attention. Because of this second issue, the market for user attention exhibits surprising behavior when competition increases. In particular, heightened competition among a given type of site (SEs or CBWs) may cause social welfare to decrease by giving the other type of site incentive to make more inefficient demands for the user’s attention.