When product markets become collective traps: The case of social media

Leonardo Bursztyn, Benjamin R. Handel, Rafael Jiménez Durán and Christopher Roth

No 336, Working Papers from The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State

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.

JEL-codes: D62 D91 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-com, nep-pay and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: When Product Markets Become Collective Traps: The Case of Social Media (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cbscwp:279570

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