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

Author

Listed:
  • Leonardo Bursztyn
  • Benjamin R. Handel
  • Rafael Jimenez
  • Christopher Roth

Abstract

Individuals might experience negative utility from not consuming a popular product. With such externalities to non-users, standard consumer surplus measures, which take aggregate consumption as given, fail to appropriately capture consumer welfare. We propose an approach to account for these externalities and apply it to estimate consumer welfare from two social media platforms: TikTok and Instagram. Incentivized experiments with college students indicate positive welfare based on the standard measure, but negative welfare when accounting for these non-user externalities. Our findings highlight the existence of product market traps, where large shares of active users prefer each platform not to exist.

Suggested Citation

  • Leonardo Bursztyn & Benjamin R. Handel & Rafael Jimenez & Christopher Roth, 2023. "When Product Markets Become Collective Traps: The Case of Social Media," NBER Working Papers 31771, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31771
    Note: IO PE POL
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    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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