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Media, Aggregators and the Link Economy: Strategic Hyperlink Formation in Content Networks

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Abstract

A key property of the World Wide Web is the possibility for firms to place virtually costless links to third-party content as a substitute or complement to their own content. This ability to hyperlink has enabled new types of players, such as search engines and content aggregators, to successfully enter content ecosystems, attracting traffic and revenues by hosting links to the content of others. This, in turn, has sparked a heated controversy between content producers and aggregators regarding the legitimacy and social costs/benefits of uninhibited free linking. This work is the first to model the implications of interrelated and strategic hyper-linking and content investments. Our results provide a nuanced view of the much-touted Òlink economyÓ, highlighting both the beneficial consequences and the drawbacks of free hyperlinks for content producers and consumers. We show that content sites can reduce competition and improve profits by forming links to each other; in such networks one site makes high investments in content and other sites link to it. Interestingly, competitive dynamics often preclude the formation of link networks, even in settings where they would improve everyone's profits. Furthermore, such networks improve economic efficiency only when all members have similar abilities to produce content; otherwise the less capable nodes can free-ride on the content of the more capable nodes, reducing profits for the capable nodes as well as the average content quality available to consumers. Within these networks, aggregators have both positive and negative effects. By making it easier for consumers to access good quality content they increase the appeal of the entire content ecosystem relative to the alternatives. To the extent that this increases the total traffic flowing into the content ecosystem, aggregators can help increase the profits of the highest quality content sites. At the same time, however, the market entry of aggregators takes away some of the revenue that would otherwise go to pure content sites. Finally, by placing links to only a subset of available content, aggregators further increase competitive pressure on content sites. Interestingly, this can increase the likelihood that such sites will then attempt to alleviate the competitive pressure by forming link networks.

Suggested Citation

  • Chrysanthos Dellarocas & Zsolt Katona & William Rand, 2010. "Media, Aggregators and the Link Economy: Strategic Hyperlink Formation in Content Networks," Working Papers 10-13, NET Institute.
  • Handle: RePEc:net:wpaper:1013
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    References listed on IDEAS

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    1. Galeotti, Andrea & Goyal, Sanjeev, 2007. "The Law of the Few," Economics Discussion Papers 2981, University of Essex, Department of Economics.
    2. Bloch, Francis & Dutta, Bhaskar, 2009. "Communication networks with endogenous link strength," Games and Economic Behavior, Elsevier, vol. 66(1), pages 39-56, May.
    3. Cabrales, Antonio & Calvó-Armengol, Antoni & Zenou, Yves, 2011. "Social interactions and spillovers," Games and Economic Behavior, Elsevier, vol. 72(2), pages 339-360, June.
    4. Bramoulle, Yann & Kranton, Rachel, 2007. "Public goods in networks," Journal of Economic Theory, Elsevier, vol. 135(1), pages 478-494, July.
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    Cited by:

    1. Larbi Alaoui & Fabrizio Germano, 2012. "Time scarcity and the market for news," Economics Working Papers 1348, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2014.
    2. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    3. Joan Calzada & Guillem Ordóñez, 2012. "Competition in the news industry: fighting aggregators with versions and links," Working Papers 12-22, NET Institute.
    4. de Cornière, Alexandre & Taylor, Greg, 2016. "A Model of Biased Intermediation," CEPR Discussion Papers 11457, C.E.P.R. Discussion Papers.
    5. Matthew Ellman & Tomás Rodríguez Barraquer, 2016. "Strategic grouping and search for quality journalism, online versus offline," Working Papers 16-21, NET Institute.
    6. George, Lisa M. & Hogendorn, Christiaan, 2012. "Aggregators, search and the economics of new media institutions," Information Economics and Policy, Elsevier, vol. 24(1), pages 40-51.
    7. Alexandre de Corniere & Miklos Sarvary, 2017. "Social Media and the News Industry," Working Papers 17-07, NET Institute.
    8. Jeon, Doh-Shin, 2018. "Economics of News Aggregators," TSE Working Papers 18-912, Toulouse School of Economics (TSE).
    9. Doh-Shin Jeon & Nikrooz Nasr Esfahani, 2012. "News Aggregators and Competition Among Newspapers in the Internet," Working Papers 12-20, NET Institute.
    10. Hong, Sounman, 2012. "Online news on Twitter: Newspapers’ social media adoption and their online readership," Information Economics and Policy, Elsevier, vol. 24(1), pages 69-74.
    11. Alexandre de Cornière & Greg Taylor, 2014. "Quality Provision in the Presence of a Biased Intermediary," Working Papers 14-06, NET Institute.
    12. Esfahani, Nikrooz Nasr & Jeon, Doh-Shin, 2013. "News Aggregators and Competition Among Newspapers in the Internet," IDEI Working Papers 770, Institut d'Économie Industrielle (IDEI), Toulouse, revised 16 Jul 2014.
    13. James Rutt, 2011. "Aggregators and the News Industry: Charging for Access to Content," Working Papers 11-19, NET Institute, revised Sep 2011.
    14. Gal OEstreicher-Singer & Barak Libai, 2011. "Assessing Value in Product Networks," Working Papers 11-29, NET Institute, revised Sep 2011.
    15. Esfahani, Nikrooz Nasr & Jeon, Doh-Shin, 2013. "News Aggregators and Competition Among Newspapers on the Internet," TSE Working Papers 13-388, Toulouse School of Economics (TSE), revised 16 Jul 2014.
    16. Ron Berman & Zsolt Katona, 2016. "The Impact of Curation Algorithms on Social Network Content Quality and Structure," Working Papers 16-08, NET Institute.
    17. Doh-Shin Jeon & Nikrooz Nasr, 2016. "News Aggregators and Competition among Newspapers on the Internet," American Economic Journal: Microeconomics, American Economic Association, vol. 8(4), pages 91-114, November.

    More about this item

    Keywords

    hyperlinks; content networks; content aggregators; strategic network formation.;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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