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

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

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

  • Leonardo Bursztyn
  • Benjamin Handel
  • Rafael Jiménez-Durán
  • Christopher Roth
American Economic Review (Forthcoming)

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 active users of a platform prefer it not to exist.

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