The Economics of Spam∗

The term “spam,” as applied to unsolicited commercial email and related undesirable online communication, derives from a popular Monty Python sketch set in a cafe that includes the cannedmeat product SPAM in almost every dish. As the waitress describes the menu with increasing usage of the word “spam,” a group of Vikings in the cafe start singing, “Spam, spam, spam, spam, spam,” drowning out all other communication with their irrelevant, repetitive song. The analogy to unsolicited commercial solicitations jamming one’s inbox seems quite apt. Every day about 90 billion emails are sent to valid email addresses around the world; in 2010 an estimated 88 percent of this worldwide email traffic was spam (Symantec, 2010; MAAWG, 2011). Almost all of this spam is illegal under current laws. How does spam differ from legitimate advertising? If I enjoy watching network television, using a social networking site or checking stock quotes online, I know I will be subjected to advertisements, many of which may be irrelevant or even annoying to me. Google, Yahoo!, Microsoft, Facebook, and others provide valuable consumer services, such as social networking, news and email, supported entirely by advertising revenue. While people may resent advertising, most consumers accept that advertising is a price they pay for access to valuable content and services. By contrast, unsolicited commercial email imposes a negative externality on consumers without any marketmediated benefit, and without the opportunity to opt out. This negative externality makes spam particularly useful for teaching purposes. When asked for an example of an externality, most economists think of environmental pollution: groundwater toxins, acid rain, air pollution, global warming, and so on. Indeed, given the great linguistic generality of the term “pollution” (including noise pollution, light pollution, and others), it can be ∗The authors completed this work while both were working at Yahoo! Research. We thank Yahoo! for giving us an unprecedented opportunity to pursue research with academic freedom and access to corporate data. We are grateful to our former Yahoo! colleagues Carlo Catajan, Raghav Jeyeraman, and Gareth Shue for taking time to help us understand the institutional details of this market. Anirban Dasgupta, Randall Lewis, Preston McAfee, Kunal Punera, Michael Schwarz, and Andy Skrzypacz provided helpful discussions. We thank JEP editors David Autor, John List, Chiang-Tai Hsieh, and especially managing editor Timothy Taylor, for advice and support in structuring and revising this paper.