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When Competition Needs Awareness: Regulating Social Media with Naive Users

Author

Listed:
  • Banchio, Martino
  • Decarolis, Francesco
  • Groh, Carl-Christian
  • Jiménez-Durán, Rafael
  • Risco, Miguel

Abstract

Can intensifying competition protect social media users? The answer depends on users’ awareness of the harms of social media content. We develop a model of asymmetric competition between platforms with naive users, in which platforms choose how much to amplify harmful yet engaging content. Naive users do not internalize the adverse effects of consuming this content. Reducing a dominant platform’s competitive advantage benefits users only if the platform prioritizes attracting rational users. Otherwise, intensifying competition can backfire by inducing this platform to exploit naive users. Awareness initiatives complement competition policy by making exploitation less attractive, but may increase market concentration.

Suggested Citation

  • Banchio, Martino & Decarolis, Francesco & Groh, Carl-Christian & Jiménez-Durán, Rafael & Risco, Miguel, 2026. "When Competition Needs Awareness: Regulating Social Media with Naive Users," CEPR Discussion Papers 21678, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21678
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    Keywords

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    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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