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A recent article in the Journal of Economic Literature provides a guide to the growing academic literature on the economics of social media platforms. In 2023, 4.76 billion people—60% of the world’s population—were on at least one social media platform. That is 9 out of every 10 people who have internet access. The average internet user spends almost 2-1/2 hours daily on such platforms.
In some ways, social media platforms are unlike traditional media platforms, such as radio and television. In other ways, they are very similar. The authors define social media platforms as having three components.
First, unlike traditional media platforms, where users simply consume content, users generate most of the content on social media. Users share content with others, who can interact with the instigating user. Like traditional media, access to social media platforms is typically free of charge to users. But as the saying goes: If users get a service for free, then the users themselves are the product.
The second component is that, like traditional media, advertising revenue provides the finances social media platforms need. While platform content is “free” in both traditional and social media platforms, advertisers pay to influence users’ spending choices through their advertising.
Third, unlike traditional media platforms, social media platforms use algorithms to deliver advertising and other content to specific users. Social media platforms such as Facebook, X, TikTok and Instagram can narrowly target particular users with ads, while traditional media such as TV and radio broadcast their advertising.
The best thing about social media platforms is that users are empowered to create and share their own content with others. Creating and sharing content made possible by social media networks has created the largest increase in international information distribution in history. The time and energy users spend on social media platforms is a testament to the massive benefits users receive.
However, the worst thing about social media platforms is that users are empowered to create and share their content with others. Creating and sharing content often leads to gross misinformation, hoaxes, hate speech, privacy compromises and perhaps a worldwide mental health crisis.
The authors note that empirical measures of these benefits and costs are in their infancy. For example, international studies show that social media platforms can reduce, increase or have no impact on political polarization. Like other disruptive innovations, social media networks have positives and negatives, and that implies there are tradeoffs.•
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Bohanon and Horowitz are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
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