Social Media Advertising Loads as Prices

George Beknazar-Yuzbashev, Jiménez-Durán, Rafael, Andrey Simonov and Mateusz Stalinski
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George Beknazar-Yuzbashev: University of Chicago
Jiménez-Durán, Rafael: Bocconi University, IGIER, Stigler Center, CESifo, and CEPR
Andrey Simonov: Columbia University and CEPR
Mateusz Stalinski: University of Warwick and CAGE

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: Most digital platforms are funded through advertising rather than direct payments. Why? We argue that three main factors could explain this prevalence: users are more sensitive to monetary prices than to ad loads, microtargeting improves the match quality between users and ads, and platforms can personalize ad loads and thus price discriminate. We conduct a field experiment on Facebook with 1,810 users who install a browser extension that (i) hides nearly all ads or (ii) replaces microtargeted ads with untargeted ones. We find that hiding 82% of ads increases time on the platform by only 6%, showing that users are highly insensitive to ad loads. Removing targeting sharply reduces ad clicks and long-run engagement, indicating that targeting increases the match quality between users and ads. Finally, two-thirds of ad-load variation occurs across users, consistent with ad-load discrimination. Counterfactual simulations indicate that an ad-funded model performs at least as well as a subscription model in terms of profits and delivers higher consumer surplus. The key mechanism is that users are much less sensitive to ad loads than to monetary prices, making advertising a relatively efficient revenue source.

Keywords: social media platforms; online advertisement; user engagement; field experiment JEL Classification: (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-exp, nep-pay and nep-reg
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