This note examines bundling where a firm sells content or a service and, in the process, buys the customer’s attention or data. For example, Google bundles search with ads. This kind of sell/buy bundle is prevalent in the digital economy. We develop a framework to address the question: When will the firm require customers to take a sell/buy bundle rather than allow them to buy the content without selling their attention? Under our assumptions, if the average customer’s value of content is large relative to the value of the ad and customer attention costs are relatively low, the profit-maximizing strategy for the firm is to price so that all customers take the bundle. We end by considering other reasons for sell/buy bundling that fall outside our economic model.
By Adam Brandenburger & Barry Nalebuff1
Newspapers and online platforms provide content to readers, and, in return, readers give their attention to advertisements. Sometimes, as in the case of newspapers, there is a net positive price charged to readers for the two transactions. Other times, as with Facebook or Google, the net price is zero.
The case of customers giving up data is similar. The firm provides content or a service and, in return, the customer provides personal data. In this note, we focus on bundles where the customer is selling their attention, but the results do not depend on the label we attach to what the customer is providing.
The sale of content supported by ads is a f...