A Simple Model of News Aggregators, Information Cascades, and Online Traffic

This paper puts forth a simple model explaining the manner in which news aggregators such as Google News or Yahoo! News build herd behavior through information cascades. The model suggests that (1) an increase in the number of Internet users will make herding more significant over the Internet, resulting in a greater concentration of online traffic; (2) the first mover advantage will increase holding constant the quality of competing products or service; and (3) the use of an aggregator involves a tradeoff between imperfect information and search cost reduction, and this may not always be welfare enhancing. The model also provides a policy implication suggesting that the social costs incurred by aggregators will be minimized when the scope of a “design”– within which popularity information is ranked – is set as narrow as possible