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The Economics of Spam

Author

Listed:
  • Justin M. Rao
  • David H. Reiley

Abstract

We estimate that American firms and consumers experience costs of almost $20 billion annually due to spam. Our figure is more conservative than the $50 billion figure often cited by other authors, and we also note that the figure would be much higher if it were not for private investment in anti-spam technology by firms, which we detail further on. Based on the work of crafty computer scientists who have infiltrated and monitored spammers' activity, we estimate that spammers and spam-advertised merchants collect gross worldwide revenues on the order of $200 million per year. Thus, the "externality ratio" of external costs to internal benefits for spam is around 100:1. In this paper, we start by describing the history of the market for spam, highlighting the strategic cat-and-mouse game between spammers and email providers. We discuss how the market structure for spamming has evolved from a diffuse network of independent spammers running their own online stores to a highly specialized industry featuring a well-organized network of merchants, spam distributors (botnets), and spammers (or "advertisers"). We then put the spam market's externality ratio of 100 into context by comparing it to other activities with negative externalities. Lastly, we evaluate various policy proposals designed to solve the spam problem, cautioning that these proposals may err in assuming away the spammers' ability to adapt.

Suggested Citation

  • Justin M. Rao & David H. Reiley, 2012. "The Economics of Spam," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 87-110, Summer.
  • Handle: RePEc:aea:jecper:v:26:y:2012:i:3:p:87-110
    Note: DOI: 10.1257/jep.26.3.87
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.3.87
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    References listed on IDEAS

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    1. Loder Theodore & Van Alstyne Marshall & Wash Rick, 2006. "An Economic Response to Unsolicited Communication," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 6(1), pages 1-38, March.
    2. Van Alstyne Marshall W., 2007. "Curing Spam: Rights, Signals & Screens," The Economists' Voice, De Gruyter, vol. 4(2), pages 1-4, April.
    3. Shyam NMI Sunder & Matthew A. Cronin & Robert E. Kraut & James Morris & Rahul Telang, 2002. "Markets for Attention: Will Postage for Email Help?," Yale School of Management Working Papers ysm301, Yale School of Management.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Vogelsang Ingo, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, De Gruyter, vol. 64(3), pages 193-270, December.
    2. Kox, Henk L.M., 2013. "Cybersecurity in the perspective of Internet traffic growth," MPRA Paper 47883, University Library of Munich, Germany.
    3. Hoffman, Mitchell & Morgan, John, 2015. "Who's naughty? Who's nice? Experiments on whether pro-social workers are selected out of cutthroat business environments," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 173-187.
    4. Hartmut Egger & Josef Falkinger, 2016. "Limited Consumer Attention in International Trade," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1096-1128, November.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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