Economic Theory

Elon Musk’s takeover and the economics of Twitter

Twitter and the Left: the story so far

Until very recently, complaints about Twitter’s content moderation and user admission policies used to come predominantly from the political Right. Left-wing sources would either defend Twitter, or actively cheer them on when they restricted content and/or suspended accounts.

For example, in 2020, when Donald Trump complained about Twitter hiding some of his tweets, the  Washington Post published an article entitled “No, Twitter is not violating Trump’s freedom of speech”, in which they argued:

“Twitter is a private company, not a government. The First Amendment was designed to prevent Congress or the states from blocking people’s freedom to express themselves. In fact, you could argue that it protects the right of a company such as Twitter to decide for itself what content to allow. […]

Twitter […] can regulate its content as it wishes […] And if Trump doesn’t like it, he is welcome to go to another platform.”

Then in 2021, when Twitter suspended Trump’s account altogether – alongside with the accounts of more than 70,000 of his supporters –, Vox magazine saw that as a good thing:

“[D]eplatforming works to combat online extremism […]

Radical extremists […] use social media to spread their messaging, so deplatforming those extremists makes it harder for them to recruit. […] [W]hen was the last time you heard the name Milo Yiannopoulos? After the infamous right-wing instigator was banned from Twitter […], his influence and notoriety plummeted. […]

When internet communities send a message of zero tolerance toward […] extremists, other users also grow less tolerant and less likely to indulge extremist behavior and messaging. […]

The element of public shaming involved in kicking people off a platform reminds everyone to behave better.”

Left-wing economist Robert Reich tweeted:

“Trump is suing Facebook, Twitter, and Google for violating his 1st Amendment rights by keeping him off their platforms. Someone should remind him that they’re private companies to which the 1st Amendment doesn’t apply.”

Twitter and the Left: a sudden change of tune

But after the announced takeover of the platform by billionaire Elon Musk, the tune suddenly changed radically.

George Eaton, a Corbynista journalist at the New Statesman magazine, reacted to the deal by tweeting:

“It’s almost as if Twitter should be treated as a public utility rather than subject to the whims of the world’s richest man.”

Max Berger of the “Justice Democrats” (a left-wing pressure group within the American Democratic Party) tweeted:

“Why would we allow a single individual […] to control such a vital public utility? It should be publicly owned.”

And the aforementioned Robert Reich now tweeted:

“Elon Musk owns Twitter.

When multi-billionaires take control of our most vital platforms for communication, it’s not a win for free speech. It’s a win for oligarchy.”

Oddly enough, the complaint is not that Musk’s Twitter will be too censorious, thus stifling free speech. The complaint is that it will not be censorious enough. The fear is not that Musk is going to blacklist people he disagrees with. On the contrary: the Guardian published a list of people who are currently barred from Twitter, but who might now be readmitted (the aforementioned Donald Trump and Milo Yiannopoulos among them). Another Guardian article, subtitled “Musk’s takeover, and the likely return of Donald Trump, fills me with dread”, claims:

“Musk […] likes to describe himself as a “free-speech absolutist”. It seems highly likely that he will unravel what little content moderation there is at Twitter, making life harder for minorities, who are disproportionally harassed on the platform. […] [I]t looks as if the trolls will inherit the Earth.”

The actress Jameela Jamil – who has more than a million followers – announced her intention to quit Twitter altogether:

“I fear this free speech bid is going to help this hell platform reach its final form of totally lawless hate, bigotry, and misogyny.”

The economics of Twitter: a public utility?

But let’s forget about Musk and his Twitter plans, and focus on the economics. Do Musk’s critics have a point in claiming that Twitter is a “public utility”? If so, is there a case for regulating it like one, or even nationalising it wholesale? (Let’s be generous, and ignore the slightly tricky question which government should own a Democratic People’s Twitter. Let’s also ignore the fact that even though there are 18.4 million Twitter users in Britain, most of them will almost certainly see it as a hobby rather than a necessity.)

Public utilities are natural monopolies. A natural monopoly arises when the fixed costs of providing a service are so high that realistically, there is only room for one company in the market. Under those circumstances, it would not be feasible to set up a competitor. Classic examples are the energy grid, the sewage system, and to a lesser extent, the railway network.

This clearly does not apply to Twitter. There are at least half a dozen platforms which, at least in technological terms, are very close substitutes for Twitter: Parler, Gettr, Truth Social, Gab, MeWe, etc. The cost of setting up Twitter-like platforms can be expected to come down even further, and the cost of switching is already zero, so barriers to entry cannot be the issue. (Note that we have defined the market in a very narrow way. In a broader sense, Twitter also competes with different types of platforms, such as Facebook, YouTube, and old-fashioned online discussion forums.)

The economics of Twitter: a network good?

But maybe “utility” is just not quite the right comparison. Twitter is clearly characterised by networks effects, which can also lead to a market-dominant position. Network effects are present when the usefulness of a good increases with the number of users. The classic example is telephones. In a country where nobody has a telephone, there would not be much point in being the first person to get one, because, well – who would you call? A phone is only useful when many other people have one, too, and the more people have one, the more useful it becomes. We can also think of currencies and languages as network goods, and indeed, both are usually national or regional “monopolies”.

But this does not quite explain Twitter’s market-dominant position. Network effects exist for social media platforms, but they flatline after some point. There are only so many people you can realistically interact with on a social media platform. Once you follow a certain number of people, you will only see a fraction of their tweets, and once a certain number of people follow you, you will start missing more and more of your own notifications.

Perhaps more importantly, Twitter is famous for how its users self-select into camps and tribes. It is the very opposite of the romantic idea of a digital “public square”, where everyone mixes and mingles merrily with everyone else. It is a collection of overlapping filter bubbles and echo chambers, segregated along ideological lines, and, of course, on the basis of interests. Would it really be unimaginable to have these bubbles scattered across five or six medium-sized, competing platforms? What value is gained by concentrating them all in one place?

The economics of Twitter: an alternative explanation

So if Twitter is not a natural monopoly – why is it that none of the Twitter-like platforms have become serious competitors? If a competitive market in social media platforms is feasible – why have we not seen such a market emerge?

As someone who knows Twitter quite well, I would suggest the following explanation:

A lot of medium-to-high-profile users use Twitter to gauge what the fashionable opinion on the topic of the day is. Not all of them will adopt that opinion in full, but even the ones that don’t still enjoy being in the (digital) company of people with fashionable opinions. Twitter’s rivals, on the other hand, immediately acquired a reputation for being very “Trumpian”; in other words, they immediately became associated with extremely unfashionable opinions. Insofar as the point of a social media platform is to gauge what the high-status opinion of the day is, or more generally, to seek the company of people with high-status opinions, being associated with low-status opinions is a death sentence.

If I am right, then the correct analogy for a social media platform is not a utility, and it is not the telephone network either. It is a neighbourhood with several competing pubs, where all the cool people happen to concentrate in the same pub, and where the main motivation of most pub-goers is to be where the cool people are.

In such a situation, you could open as many pubs as you like – even exact replicas of the popular one – but you would still not be a serious rival. Because you lack that key ingredient.

Does this mean that the market-dominant position of the popular pub is unassailable?

Absolutely not. It is, on the contrary, highly unstable. Once you lose the cool people, a large chunk of your other customers will folow them wherever they go, and abandon you en bloc. The same could happen to Twitter.

Imagine a Twitter superstar like US Representative Alexandria Ocasio-Cortez, who has nearly 13 million Twitter followers, publicly announced her intention to switch to a rival platform, and urged her fans to follow her there. That alone would probably be enough to instantly make that rival platform viable.

Then there would be a second round of movers, namely, centre-left and centrist journalists and academics, who may not themselves be card-carrying members of the Democratic Socialists of America (DSA), but who still want to be where the hip crowd is.

In short, it is not the market power of Elon Musk I would keep an eye on. It is the cultural power of people with fashionable opinions.


Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

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