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

In Section 3 of the paper, we use a reduced form model to account for how consumers select their anchor node. In this section, we provide a formal micro-model of a process that provides justi cation for our assumptions. We also consider the possibility that some consumers may switch their anchor nodes when encountering a link to a higher quality site and show that including this feature in our model does not qualitatively change our results. In common with other analyses of web-browsing behavior, we employ a Markovian model to abstract the anchor node selection process. Model states i = 0, 1, .., N designate which site a consumer uses as her anchor node. State 0 corresponds to the situation where the consumer anchors herself at the outside option. We de ne transition probabilities from one state to another, representing the likelihood that consumers change their anchor node. We follow the behavior of one randomly selected consumer and measure the probabilities that the consumer anchors herself at a particular node. Let pi de ne the probability that the consumer is anchored at site i = 0, 1, ..N ; p0 corresponds to the outside option. Let wij measure the transition probability from node i to j, that is, the probability that the consumer switches her anchor from i to j, given that her current anchor is j. We assume