Economic Analysis of Social Issues 1st Edition by Alan Grant

Exercise 8

[ Related to Application on page 92 ] Read Application carefully. Then depict the game played by users of social media graphically. Remember that users have a choice of using either Facebook or Google+. Let the horizontal axis measure the number of users choosing Facebook.
Application:
In the fall of 2012, Facebook logged its one- billionth account. Facebook dominates social networking, single-handedly accounting for one-fifth of all Internet page views. The company has reunited friends, kindled romances, and even ignited revolutions, beginning in 2010 with the Arab Spring uprisings in the Middle East.
Yet it seems that everybody hates Facebook. Some hate the website's Timeline feature. Some worry about privacy. Some can't stand seeing advertisements in their newsfeeds. So disgruntled are Facebook users that a Google search for "I hate Facebook" generates 700 million results.
There are alternatives to Facebook, including Google+, Google's third attempt to derail the Facebook juggernaut. Google+ went live to rave reviews, comparing favorably to Facebook in terms of its technical execution and overall user experience. Yet Google+ has gone nowhere. Why do people continue to use a product they hate when there's a better one available? That wouldn't happen with micro- wave ovens!
The reason is that social media sites, unlike microwave ovens, grow in value as more people use them. When the number of Facebook users increases, the number of potential connections you can make with it increases, too. This makes Facebook more valuable to you. Economists call such goods tietwork goods.
But Google+ is a network good, too, and it's one that's arguably better than Facebook. So why don't people switch? Thinking of social networks as a game theorist might can help answer that question. Suppose your friends have a choice of using Facebook or Google+. If nobody uses Facebook, it holds zero value to you. The more people who sign up for Facebook, the greater the number of connections you can make: You'll see more status updates, and more people will see yours.
The point of social networks is connectedness, so there are payoffs to using Google+, too. If no one is using Google+, your payoff for using it is zero. The more people who use it, the greater your payoff. But because Google+ creates a better user experience, your payoff when everyone uses it is higher than the potential payoff when everyone uses Facebook.
As is the case in the clubbing game, you'll find two stable equilibria here: one where everyone uses Facebook and one where everyone uses Google*. But because Google+ offers a better platform than Facebook, everyone agrees that the Google+ equilibrium is better than the Facebook equilibrium. This situation describes a multiplayer game of assurance.
Today, we're at an "all Facebook" equilibrium simply because Facebook came along first. But equilibria, even inferior equilibria, can be sticky. We'd all be better off if everyone would collectively switch from Facebook to Google+. But if you as an individual switch on your own, you don't gain. You lose.
We use Facebook because we literally can't help ourselves! Google+ won't replace Facebook unless it can convince hundreds of millions of Facebook users to switch simultaneously. This means that 10 years from now, we'll probably still be using Facebook-and telling everyone just how much we hate it.