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

Leonardo Bursztyn¹; Benjamin Handel²; Rafael Jiménez-Durán³; Christopher G. Roth⁴

¹ University of Chicago · ² University of California, Berkeley · ³ Bocconi University · ⁴ Max Planck Institute for Behavioral Economics

Individuals might experience negative utility from not consuming a popular product. With such externalities to nonusers, 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 nonuser externalities. Our findings high-light the existence of product market traps, where active users of a platform prefer it not to exist. (JEL D62, D83, D91, L82, Z13)

DOI

10.1257/aer.20231468

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