Should social networks inform their users about the prices they charge advertisers?

Yan-Shu Lin, Van-Chung Dong and Suwannajoi Suttiwan

Journal of Media Economics, 2025, vol. 37, issue 3, 105-128

Abstract: Positive intra-group and negative inter-group externalities naturally exist in the environments of digital platforms, such as social media platforms in a two-sided market. Consider a scenario where one group of agents (advertisers) is informed and holds responsive beliefs, while the other side (users) is uninformed and holds passive beliefs. For a monopoly platform, platform profit is lower when users are uninformed. However, advertiser surplus increases under uninformed conditions. User surplus and social welfare are only higher under uninformed conditions if the intra-group externality is sufficiently small. In competitive market structures, platform profits remain lower when users are uninformed, while advertiser surplus is consistently higher. In a single-homing duopoly, user surplus and social welfare remain unaffected by user information conditions. Conversely, in competitive bottleneck markets, user surplus increases when users are uninformed. Social welfare, however, is higher under uninformed conditions only if the negative inter-group externality is sufficiently small. When users adopt wary beliefs, regardless of market structure, equilibrium outcomes always lie within the range defined by the extremes of fully informed and uninformed users with passive beliefs. This paper suggests that platforms should inform their users about the prices they charge advertisers, but it may be socially desirable under uninformed conditions.

Date: 2025
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DOI: 10.1080/08997764.2025.2483227

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