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The Macroeconomics of Free Digital Services

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  • Mathilde Aubouin

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique, GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)

  • Lionel Ragot

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

Digital technology has enabled the rise of free digital services financed by advertising. These services are increasingly popular and enable a few digital firms to generate significant revenue, although GDP does not directly consider them. This paper presents a growth model with digital services providers collecting household data in exchange for their services, which are used to sell targeted advertising to traditional firms. It enables us to study the impacts of this sector on key macroeconomic aggregates and welfare within the American context. Our results highlight that enhanced activity among large providers (new entry, greater efficiency in producing service quality or advertising) positively impacts the economy. Data collection enables small providers to compete with large ones, which benefit from greater user attention. Household preferences, such as sensitivity to privacy, also play a role, potentially hindering the free digital services sector's economic impact.

Suggested Citation

  • Mathilde Aubouin & Lionel Ragot, 2024. "The Macroeconomics of Free Digital Services," Working Papers hal-04616676, HAL.
    • Handle: RePEc:hal:wpaper:hal-04616676
    Note: View the original document on HAL open archive server: https://hal.science/hal-04616676
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    More about this item

    Keywords

    Economic growth; Digital economy; Data economy; Privacy; Advertising;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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