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Social Connectedness and Information Markets

Author

Listed:
  • Rachel Kranton
  • David McAdams

Abstract

This paper investigates information quality in a simple model of socially connected information markets. Suppliers' payoffs derive from the fraction of consumers who see their stories. Consumers prefer to share and act only on high-quality information. Quality is endogenous and highest when social connectedness is neither too high nor too low. In highly connected markets, low-quality stories are widely seen, giving suppliers little incentive to invest in quality. Increasing the volume of misinformation and increasing consumers' costs of tuning in to suppliers' broadcasts can each increase equilibrium information quality.

Suggested Citation

  • Rachel Kranton & David McAdams, 2024. "Social Connectedness and Information Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 16(1), pages 33-62, February.
    • Handle: RePEc:aea:aejmic:v:16:y:2024:i:1:p:33-62
    DOI: 10.1257/mic.20220056
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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