Biblioteca

Abstract: We study the dynamics of network goods, such as social media, when agents experience fear of missing out (FOMO): the consumption of a popular product generates negative externalities for those who abstain. We incorporate FOMO into a model of network externalities with timing frictions. FOMO can give rise to product market traps, where agents get stuck consuming a good in equilibrium, but would prefer it not to exist. However, such traps may still be constrained efficient. When an economy is in a trap, large restrictions on social media raise welfare, but small restrictions might lower it. We show how experimental results can be used to assess efficiency through the lens of our model, and using estimates from the empirical literature, we find that TikTok and Instagram are in an inefficient equilibrium.