See the seminar's full schedule here: Alberto Alesina Seminar on Political Economy
Today's Speaker
Leo Burstzyn (UChicago), "When Product Markets Become Collective Traps: The Case of Social Media"
Abstract
Many products generate negative consumption spillovers to potential non-users. One may experience disutility when one is not consuming the product, while others are; for example, if consuming the product gives social status, or if not consuming it leads to social isolation. We show that, in the presence of such spillovers, standard measures that take the aggregate consumption as given fail to appropriately capture welfare. We propose a new methodology to measure welfare that allows 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 large and positive surplus, our measure accounting for consumption spillovers indicates negative surplus, with a large share of active users even deriving negative utility from the platforms. 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.
... Read more about Leo Burstzyn (Alesina Seminar)
