Likes, Laws and Lost Time: The Economics of Social Media

 

Some of you might be familiar with the phrase ‘if the product is free, you are the product’. Social media platforms often thrive in an environment of deep-rooted insecurity, where our deteriorating attention spans are used as currency. Behind the mask of trends and staying in touch, there is a sea of negative externalities impacting users everywhere. Negative externalities, whereby a transaction between firm and user has negative third-party spillover effects, are prevalent within social media platforms. The trade between platforms, providing access and algorithms, and users, providing attention and content, can often impact surrounding parties. Whether it be through driving insecurity, promoting extensive time-wasting, or even turning society into ‘dopamine junkies’, this is an issue that affects the masses. This post explores all the ways in which social media has turned us into their best-selling product.

The Birth of Social Media

The desire for social contact is embedded in humans. From letter to phone to fax to pigeon, nothing compares to the communicative revolution which the internet brought. Social media gave birth to a world where communication no longer requires effort. It fed our fix for personal contact while skipping the pressures, awkwardness and emotion of real conversation. Katz and Shapiro (1985) discussed the concept of a product’s value increasing as more people consumed it, and it was these network effects which drove our dependence on social media: communities of like-minded people whose friendships only exist through the internet, firms whose brands rely on manufactured personalities to foster relationships with consumers (Rasul, 2018) and news outlets whose stories can reach the public eye faster than ever before. Above all, it became the centrepiece of our entertainment, feeding us easily digestible content anytime, anywhere.

An Attention Economy

It comes as no shock that the repercussions of social media are not wholly positive; terms such as ‘doomscrolling’ and ‘FOMO’ are commonplace for avid social media users. The concept of hyperbolic discounting is a cognitive bias where individuals place disproportionate weight on rewards in the present, more than those farther in the future, regardless of said later ‘reward’ being more valuable. This effect is evident with extensive scrolling on social media - wasting time in pursuit of the short-term dopamine boosts that social media has been identified to produce. Society has become glued to social media, hooked on superficial ‘feel-good’ feelings, neglecting real-world growth and the acquisition of meaningful experiences.

Further, social media has exacerbated the already prevalent issue of commodity fetishism, in its constant display of unrealistic lifestyles and attributes. In current society, natural human insecurity has become a sales technique, something to convert into profit; jealousy of others has fuelled desires to fix insecurity through various purchases. This ‘fetishism’, a theory developed by Marx (1867) describes how commodities are assigned value beyond the labour and capital used to produce them. This is particularly evident in social media trends, where what’s really being sold is not the product itself, but the illusion of a perfect lifestyle. Asymmetric information allows corporations to exploit user data, targeting insecurities through personalised ads that few realize they have consented to. In a world where insecurity is monetised, social media has turned self-image into a never-ending transaction, pushing unattainable standards.

Cult-Formation and Squabble-Elevation

At what point do our communities become cults? Hopefully, never. However, with our data constantly training an algorithm profiting from our attention, widespread digital echo chambers have become all too prominent. Considering the findings of Tajfel (1970), who discovered that people will favour those with similar qualities even when group differences are negligible, the division sought through streams of content tailored towards our ideals and beliefs is obvious. A stellar example of this is the political culture in the USA. If your algorithm detects a slight lean to either ideology, related content floods your feed, reinforcing these ideals or bashing those opposing them. Therefore, these users begin to experience an anchoring bias towards their political beliefs, causing confirmation bias to convert rational discussions into irrational squabbles. These platforms create cycles of content used to polarise groups, reaffirm beliefs and generate value in the form of sustained attention. Political disagreements become bitter rivalries, transforming the democratic process into a machine for churning harmful externalities. These include violence, irrational policy decisions, and misinformation utilised for the sole purpose of capturing attention and fuelling hatred. The weaponisation of social media acts as a looming threat to us all.

This effect is also prominent in the ‘Manosphere’, a collection of anti-feminist communities online. Habib et al. (2022) found a single incident of acceptance in these communities has a significant impact on an individual’s language and outlook. The ease of this radicalisation has terrifying consequences for women and families that may become torn apart. These are only a couple of examples, yet the harm to welfare may be massive - social media cannot be allowed this power.

Never a Quick Fix

Considering this, what can governments do to reduce the impact of this issue? The Online Safety Act 2023 (2024) is an excellent example of security measures implemented so far, featuring increased transparency over harmful content, improved age-restrictions and providing parents with the ability to report problems when they do occur. Mandates to push more positive content into peoples’ feeds, instead of content that may harm one’s well-being, can be another feasible option if implemented with careful thought and consideration.

To Conclude

There is a fine line between regulation that is cautionary as opposed to totalitarian. Arguably, controlling people’s feeds to portray a more positive image is no different to how social media currently pushes material that preys on insecurity; at what point does this prevention of harmful externalities lead to the restriction of our thoughts, feelings and freedom?

With social media being such a dominant force in our culture, it has the power to help and to harm us. It was made to bring us together, and that is how we can solve this problem - together

References:

Department for Science, Innovation and Technology (2024). Online Safety Act: explainer. [online] GOV.UK. Available at: https://www.gov.uk/government/publications/online-safety-act-explainer/online-safety-act-explainer.

Habib, H., Srinivasan, P. and Nithyanand, R. (2022). Making a Radical Misogynist. Proceedings of the ACM on Human-Computer Interaction, 6(CSCW2), pp.1–28.

Katz, M.L. and Shapiro, C. (1985). Network Externalities, Competition, and Compatibility. The American Economic Review, 75(3), pp.424–440

Marx, K. (1996). Das Kapital : A critique of political economy. Washington, D.C., New York: Regnery Pub

Rasul, T. (2018). Social Media’s Growing Influence on Relationship Marketing and Corporate Culture. The Journal of Developing Areas, 52(1), pp.261–268.

Tajfel, H. (1970). Experiments in Intergroup Discrimination. Scientific American, 223(5), pp.96–103