AI Agents and the Attention Lemons Problem in Two-Sided Ad Markets

Md Mahadi Hasan

Papers from arXiv.org

Abstract: I develop a theoretical model to examine how the rise of autonomous AI (artificial intelligence) agents disrupts two-sided digital advertising markets. Through this framework, I demonstrate that users' rational, private decisions to delegate browsing to agents create a negative externality, precipitating declines in ad prices, publisher revenues, and overall market efficiency. The model identifies the conditions under which publisher interventions such as blocking AI agents or imposing tolls may mitigate these effects, although they risk fragmenting access and value. I formalize the resulting inefficiency as an ``attention lemons" problem, where synthetic agent traffic dilutes the quality of attention sold to advertisers, generating adverse selection. To address this, I propose a Pigouvian correction mechanism: a per-delegation fee designed to internalize the externality and restore welfare. The model demonstrates that, for an individual publisher, charging AI agents toll fees for access strictly dominates both the `Blocking' and `Null (inaction)' strategies. Finally, I characterize a critical tipping point beyond which unchecked delegation triggers a collapse of the ad-funded digital market.

Date: 2025-07, Revised 2025-07
New Economics Papers: this item is included in nep-ain, nep-mic and nep-reg
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