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

Working Paper: NBER ID: w31771

Authors: Leonardo Bursztyn; Benjamin R. Handel; Rafael Jimenez; 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: social media; consumer welfare; spillovers; network effects; product market traps

JEL Codes: D62; D91

Causal Claims

Cause	Effect
negative utility for nonusers (D11)	product market traps (D49)
increased consumption of social media platforms (D16)	negative nonconsumer surplus (D11)
negative nonconsumer surplus (D11)	overstatement of welfare (I30)
social media consumption spillovers (D16)	negative welfare implications (D62)
increased consumption of social media platforms (D16)	negative utility for nonusers (D11)