Are You Caught in a Social Media Trap?
Stephen J. Dubner. Mar 6, 2024, Freakonomics.
In this episode, Stephen Dubner interviewed Ben HANDEL and Leonardo BURSZTYN about their new paper:
When Product Markets Become Collective Traps: The Case of Social Media.
Leonardo Bursztyn, Benjamin R. Handel, Rafael Jimenez & Christopher Roth. 2023.
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.
some highlight of the podcast:
Simply speaking, a product market trap arises when:
[BURSZTYN] Maybe there are products that people buy but they wish these products didn’t exist.
The notion of welfare is being augmented–to take into account when people’s willingness to pay for a product depends on others’ interaction as well. This is almost of a higher-level, more intricate presentation of the network effect.
[BURSZTYN] Our work, and a lot of other people’s work, point to the benefits for the platform of having scale, having big networks. And you can see how a platform might even provide subsidies to really grow their network — because when you get so big, it becomes very hard for consumers not to join your platform, so there’s really a rationale for growing, growing, growing. That’s one thing. Now, there’s another set of questions that also relate to social media, which is how platforms can design their algorithms to reinforce these effects. People have focused a lot on how can they make things addictive, like dopamine kicks and so on, or pushing toxic content that increases engagement and outrage and so on. Now, platforms can also do things to increase the cost of being out of the market, right? They can integrate — for example, they introduced a messaging feature to Instagram. So, perhaps you were like, “I don’t want to be on Instagram because I don’t like that.” But now if all my friends are communicating on Instagram, that increases the cost for me to stay out of Instagram because I can’t even communicate with my friends. So by integrating with features that increase the cost of not being on the platform, you might be pulling more people in, even though they might not like the product.
network effects | the paradox of modern connectivity
And the talking about economic of scale and network effects never seems to becomes a cliché topic. The paradox of modern connectivity–while platforms like Instagram and TikTok are engineered for engagement and popularity, this ever-expanding network also traps us.
This calls for upgrades in regulatory frameworks and challenges facing platform designers: how to balance growth and network benefits against the genuine well-being of users. As we navigate these digital landscapes, it becomes imperative to critically evaluate not only how we engage with social media but also the broader societal norms and structures that these platforms reinforce and exploit. In doing so, we may find paths towards more sustainable and fulfilling interactions in our increasingly online lives.