The Economics of Social Media

49 Pages Posted: 15 Feb 2024

See all articles by Guy Aridor

Guy Aridor

Northwestern University - Kellogg School of Management

Rafael Jiménez Durán

Bocconi University - Department of Economics; University of Chicago

Ro'ee Levy

Tel Aviv University - Eitan Berglas School of Economics

Lena Song

The University of Illinois at Urbana-Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: January 28, 2024

Abstract

We review the burgeoning literature on the economics of social media, which has become ubiquitous in the modern economy and fundamentally changed how people interact. We first define social media platforms and isolate the features that distinguish them from traditional media and other digital platforms. We then synthesize the main lessons from the empirical economics literature and organize them around the three stages of the life cycle of user-generated content: (1) production, (2) distribution, and (3) consumption. Under production, we discuss how incentives affect content produced on and off social media and how harmful content is moderated. Under distribution, we discuss the social network structure, algorithms, and targeted advertisements. Under consumption, we discuss how social media affects individuals who consume its content and society at large, and discuss consumer substitution patterns across platforms. Throughout the review, we delve into case studies examining the deterrence of misinformation, segregation, political advertisements, and the effects of social media on political outcomes. We conclude with a brief discussion on the future of social media.

JEL Classification: L82, L96, P00, D6

Suggested Citation

Aridor, Guy and Jiménez Durán, Rafael and Levy, Ro'ee and Song, Lena, The Economics of Social Media (January 28, 2024). Available at SSRN: https://ssrn.com/abstract=4708840 or http://dx.doi.org/10.2139/ssrn.4708840

Guy Aridor

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Rafael Jiménez Durán (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Ro'ee Levy

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

Lena Song

The University of Illinois at Urbana-Champaign ( email )

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