InfoMarkets17apr20

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University of St Thomas **We aren't endorsed by this school
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ECON 251
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Economics
Date
Nov 5, 2023
Pages
51
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Coordination Motives and Competition for Attention in Information Markets * Simone Galperti and Isabel Trevino UCSD May 20, 2017 Abstract We examine markets for information where consumers want to coordinate their decisions and producers compete for consumers' attention. We describe information sources in terms of their quantity, accuracy, and clarity. We find that competition for attention leads to homogeneity of information sources, even when consumers would want to pay attention to heterogeneous sources. Clarity plays a prominent role, as it drives the comparative advantage of an information source as a coor- dination device for consumers. We also show that, by becoming the "currency" whereby consumers pay for information, attention causes information markets to work inefficiently. Keywords: information supply, coordination, payoff interdependence, attention, accuracy, clarity, inefficiency. JEL classification: C72, D62, D83, L10. * We thank for comments and suggestions S. Nageeb Ali, Rahul Deb, John Duffy, Joseph Engelberg, Renato Gomes, Garrett Johnson, Stephen Morris, Alessandro Pavan, Joel Sobel, Philipp Strack, Xavier Vives, Rakesh Vohra, and Joel Watson. John Rehbeck provided excellent research assistance. All remaining errors are ours. Department of Economics, University of California, San Diego, 9500 Gilman Dr., La Jolla, CA, 92093. E-mail addresses: [email protected]; [email protected]. First draft: July 2016 1
1 Introduction In many economic environments agents make decisions whose payoffs depend on some unknown exogenous "state of the world" and on others' decisions. Motivated by a de- sire to learn the state and to assess others' beliefs in order to coordinate their actions, agents seek information by allocating attention to multiple sources. Shared knowledge is important in a wide variety of social settings—such as trading on stock markets or participating in political rallies—and mass media contribute to its creation (see Chwe (2013)). According to Shiller (2015), "Significant market events generally occur only if there is similar thinking among large groups of people, and the news media are essential vehicles for the spread of ideas." (p. 101). This raises the question of whether and how the dual role of information sources as learning and coordination devices affects how information markets work. To answer this question, we study how suppliers of information serve the demand of consumers who experience complementarities or substitutabilities in the use of informa- tion. 1 Besides the aforementioned dual role of information sources, we focus on two other aspects of information, which differentiate it from other commodities: Information con- sumes attention while being consumed and attention itself can be a source of revenues for information providers. This leads them to compete for consumers' limited atten- tion. 2 In markets with free entry and prefect competition, we analyze how the supply of information—in terms of quantity, accuracy, and clarity—depends on how much its consumers care about learning the state relative to (mis-)coordinating with others. We study the effects of inefficiencies in the use of information on its supply and demonstrate that, even after removing all those inefficiencies, competitive equilibria are generically inefficient. To model information demand, we follow the leading paradigm of coordination games à la Morris and Shin (2002) and Angeletos and Pavan (2007). This framework has proven to be tractable yet flexible enough to capture many applications. To illustrate our theory, consider the following stylized scenario. Agents in a society have to take an action, like supporting a policy for tackling some social issue. They want to support 1 These distinctive traits of information acquisition have been examined by prominent research, in- cluding Hellwig and Veldkamp (2009), Myatt and Wallace (2012), Colombo et al. (2014), and Pavan (2014). 2 The importance of competition for attention when it comes to information sources has been stressed by many scholars across disciplines, including Simon (1971), Benkler (2006), Lanham (2006), Sunstein (2009) Davenport and Beck (2013), and Webster (2014). It is also well known that advertisers are willing to pay a lot for people's "eye balls" (McCloskey and Klamer (1995), Davenport and Beck (2013), Webster (2014)). 2
the best policy for society, which depends on some unknown state of the world. Agents also like (or dislike) conformism, namely, supporting policies that others support. Un- certain about which policy is best and about others' actions, each agent seeks relevant information by spending time attending to multiple news sources. 3 Such agents exem- plify the information consumers in our model, which are assumed to be ex-ante identical. Their (anti-)conformism preference captures the consumers' (mis-)coordination motive and results in a desire to second-guess others' beliefs (possibly to high orders in the be- lief hierarchy). As in Myatt and Wallace (2012), information sources are characterized by their accuracy and clarity. Accuracy measures the amount of information about the state (the relevant content of a news article). Clarity measures how easy it is for an agent to understand the content by paying attention to its source. The more attention she pays, the better she understands it. Higher clarity offers a higher return to attention. Importantly, and realistically, information may be interpreted differently across agents, introducing a risk of miscoordination. Contrary to the previous literature, in this paper information sources arise endoge- nously. Each source corresponds to a distinct profit-maximizing supplier. We assume that attention is their only source of revenues, thereby shutting down the usual price- competition channel. 4 We do this to better understand how competition for attention works, which is increasingly relevant in the Internet era and seems understudied relative to price competition. Perfect competition is captured by assuming free entry and non- strategic behavior on the part of suppliers. Each supplier chooses whether to produce a piece of information with some accuracy—in our illustrative story, this can be a summary report or an in-depth analysis of the policies that agents can support. Given this, each supplier selects a technology to communicate its information to potential consumers, which determines the source clarity—in our story, this technology can be a TV news channel or an online newspaper. For simplicity, suppliers can choose between two types of sources, which differ either in accuracy or in clarity. 5 This allows us to uncover the differences between competition via accuracy and via clarity and delivers useful bench- marks to understand richer cases. After suppliers commit to their choices, the agents observe them, allocate their attention, update their beliefs, and choose their actions. 3 Gentzkow (2007), Gentzkow and Shapiro (2011), and Webster (2014) find that many people get their news from multiple outlets. 4 Setting a zero price for accessing information may be a deliberate choice for some news outlets. Webster (2014) discusses numerous examples and argues that "advertising now supports much of the world's media, both online and off." Gentzkow (2007) estimates that setting prices at zero may be optimal for online outlets in the presence of a strong demand for online advertising. 5 We also analyze the case of different accuracies and clarities, which turns out to be qualitatively similar to the case with only different clarities. 3
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