When Product Markets Become Collective Traps: The Case of Social Media

Leonardo Bursztyn (), Rafael Jiménez Durán () and Christopher Roth ()
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Leonardo Bursztyn: University of Chicago and NBER
Rafael Jiménez Durán: University of California Berkeley and NBER
Christopher Roth: Bocconi University and Chicago Booth Stigler Center

No 260, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: Individuals might experience negative utility from not consuming a popular product. For example, being inactive on social media can lead to social exclusion or not owning luxury brands can be associated with having a low social status. We show that, in the presence of such spillovers to non-users, standard measures that take aggregate consumption as given fail to appropriately capture welfare. We propose a new methodology to measure welfare that accounts for these consumption spillovers, which we apply to estimate the consumer surplus of two popular social media platforms, TikTok and Instagram. In large-scale, incentivized experiments with college students, we show that, while the standard welfare measure suggests a large and positive surplus, our measure accounting for consumption spillovers indicates a negative surplus, with a large share of active users deriving negative utility. We also shed light on the drivers of consumption spillovers to non-users in the case of social media and show that, in this setting, the “fear of missing out” plays an important role. Our framework and estimates highlight the possibility of product market traps, where large shares of consumers are trapped in an inefficient equilibrium and would prefer the product not to exist.

Keywords: Welfare; Consumption Spillovers; Collective Trap; Coordination; Product Market Traps; Social Media. (search for similar items in EconPapers)
JEL-codes: D83 D91 J15 P16 (search for similar items in EconPapers)
Pages: 110 pages
Date: 2023-10
New Economics Papers: this item is included in nep-cul, nep-pay, nep-soc and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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