Working Paper: CEPR ID: DP18562
Authors: Leonardo Bursztyn; Benjamin R. Handel; Rafael Jimenez-Duran; Christopher Roth
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
JEL Codes: D83; D91; P16; J15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| traditional measures of consumer surplus overstate welfare due to the assumption that non-consumer surplus is zero (D11) | inaccurate assessment of welfare (I30) |
| negative utility experienced by non-users (D11) | inaccurate assessment of welfare (I30) |
| consumption spillovers (D62) | relevant outside option for calculating welfare should be the non-existence of the product market (D69) |
| significant share of active users derive negative utility from social media (D16) | consumers are locked into an inefficient equilibrium (D59) |
| users exhibit a willingness to pay to have others deactivate their accounts (D16) | social media trap where they prefer the product not to exist (D16) |
| presence of consumption spillovers (F62) | accurately assessing welfare effects (D69) |