Social media platforms operate in a product market trap, where their business model is based on attracting users and selling targeted advertisements. This model leads to a concentration of market power, enabling a few dominant firms to control the market. Market concentration is problematic as it stifens innovation and leads to a lack of competition.
Regulation could potentially address this issue, but it is challenging due to the global reach of these platforms and the difficulty in defining what constitutes harmful content. Moreover, regulation could inadvertently reinforce the dominance of existing firms by raising the entry barriers for new entrants.
A solution proposed is to make the algorithms used by these platforms publicly accessible. This would allow users to customise their feeds, fostering competition and innovation. However, this would require a shift in the business model of these firms, moving away from selling targeted ads.
Furthermore, data portability, the ability for users to move their data from one platform to another, could also promote competition. Yet, this raises concerns about privacy and security.
Overall, addressing the product market trap in social media is complex and requires a multifaceted approach that balances competition, innovation, privacy, and security.
Go to source article: https://cepr.org/voxeu/columns/product-market-traps-case-social-media