A Theory of Information Overload

Advertising must compete for the attention of prospective consumers, and attention is a scarce resource. "Junk" mail, "spam" e-mail, telemarketing ’phone calls, and advertising messages generally have the common feature that both sides of the market (advertisers and prospective customers) need to apply effort to generate a transaction. Message recipients supply attention according to expected consumer surplus, which depends on the average benefits across messages received. Senders are motivated by expected profits. The equilibrium number of messages transmitted depends on the profit of the marginal firm along with the communication probability induced from the receiver attention decision. In equilibrium, the wrong messages may be sent, or too many may be sent. A higher cost of message transmission may improve message quality and raise the number of messages examined and the optimal message rate reflects this. Endogenizing the number of messages per sender causes another "lottery ticket" dimension for profit dissipation. Product class competition also dissipates rents. An opt-out option (e.g. the Federal Do-Not-Call list) is better than an outright ban, but too many individuals opt out. Jel Classification: D11, D60, L13.