Measuring Social Media Network Effects (2507.04545v1)

Abstract: We use representative, incentive-compatible online choice experiments involving 19,923 Facebook, Instagram, LinkedIn, and X users in the US to provide the first large-scale, empirical measurement of local network effects in the digital economy. Our analysis reveals social media platform value ranges from $78 to $101 per consumer, per month, on average, and that 20-34% of that value is explained by local network effects. We also find 1) stronger ties are more valuable on Facebook and Instagram, while weaker ties are more valuable on LinkedIn and X; 2) connections known through work are most valuable on LinkedIn and least valuable on Facebook, and people looking for work value LinkedIn significantly more and Facebook significantly less than people not looking for work; 3) men value connections to women on social media significantly more than they value connections to other men, particularly on Instagram, Facebook and X, while women value connections to men and women equally; 4) white consumers value relationships with other white consumers significantly more than they value relationships with non-white consumers on Facebook while, on Instagram, connections to alters eighteen years old or younger are valued significantly more than any other age group-two patterns not seen on any other platforms. Social media platforms individually generate between $53B and $215B in consumer surplus per year in the US alone. These results suggest social media generates significant value, local network effects drive a substantial fraction of that value and that these effects vary across platforms, consumers, and connections.