The TikTok Economy: How Short-Form Media Influences Consumer Spending and Market Behavior
TikTok, known for memes, dance trends, and “brainrot”, is not just a fun way for teens and young adults to connect with one another over content they enjoy, but is also a lesson in economics. 86% of Gen Z shoppers say social media influences their shopping habits, and after the introduction of TikTok Shop in 2023, purchasing directly through social media has become increasingly common. 55% of TikTok users have bought something from a company after seeing it advertised on the app (MRKT Blog). TikTok, and social media in general, has completely transformed the way we discover new products, form opinions, and has even changed financial markets with the introduction of social media advertising.
TikTok, originally musical.ly, started as a social media forum for short-form video entertainment, with brief 15-30 second videos. However, as social media advertising has increased, TikTok videos have gotten longer, with the new time limit being up to 10 minutes. According to Statusphere, the ideal video length to maximize engagement ranges from 21 to 34 seconds, which is particularly important for advertisers (Statusphere, 2024). Connecting with viewers within this timeframe captures their attention most effectively and can drive consumption more than a video that’s “too long” (Statusphere, 2024). This new digital economy emerging from TikTok shows us how easily digestible media and advertising can increase incentives to buy products, thus reshaping supply and demand patterns.
One of the ten principles of economics is that rational people think at the margin, emphasizing that consumers weigh many different factors: price, quality, utility, and more, before deciding what and what not to purchase. However, with the introduction of social media marketing and advertising, these economic decisions have become more impulsive and based on influence as opposed to thought. This is exacerbated by the TikTok algorithm, which is fed data based on each swipe a user makes in the app. This data allows TikTok to show users videos (and advertisements) that they are interested in, therefore peaking the videos’ influence on consumers.
The dynamic of TikTok determining what its’ users want and using their algorithm to convince these consumers to purchase it is called the “attention economy.” In this economy, attention is a finite resource that all media creators, including companies, influencers, and brand names, have to compete to capture. For these creators, success no longer just depends on high level performance in the financial market, but also on how well one can capture the attention of potential buyers. It is possible in this economy that a ten-second viral TikTok could generate more revenue for a company than a huge advertisement campaign. The attention economy is redefining what constitutes “superior marketing,”, in that the goal of advertising is now capturing the attention of a wide range of people rather than exhibiting a useful or quality product.
Consequently, social media advertising has created a new type of demand elasticity that is shaped by social momentum instead of price. When a product or service goes viral on the internet, its value can greatly increase overnight. This is usually not because the product was proven to be particularly effective or unique, but because people were influenced into wanting it in order to be “cool” and fit into a new microtrend (Chen et al., 2024). For example, Stanley tumblers and rhode lipglosses are seemingly generic products for which many similar substitutes exist (Hydroflask and Yeti, Summer Fridays and Laneige). However, since both products began trending on social media, sales and demand for the two products drastically increased. This highlights how consumers respond not just to utility but to a deep desire to belong in society. Thus, introducing the “social” elasticity of demand: willingness to buy products increases with incentives, exposure, and desire to assimilate, rather than deals or bargains.
This digital economy demonstrates how markets can now operate based on emotion and impulse just as much as logic and judgement. The standard models for price and utility can no longer fully explain why random products sell out overnight. For both economists and brands, the most difficult part of the introduction of the digital economy is learning how to navigate the unique place where economic principles, social influences, and technological algorithms all work together. In order to find success, companies must learn to perform strategically on social media, to best capture the attention of their target audience in a landscape overflowing with content. TikTok represents a turning point for economic practices. It introduces a new scarce resource, attention, and teaches us a new economic lesson: whoever controls users’ attention, controls the market.
Edited by Caitlin Williams
References
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