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Influencer Cartels

Marit Hinnosaar, Toomas Hinnosaar

TL;DR

This work demonstrates the existence of a novel form of market failure in this advertising market: influencer cartels, where groups of influencers collude to increase their advertising revenue by inflating their engagement.

Abstract

Social media influencers account for a growing share of marketing worldwide. We demonstrate the existence of a novel form of market failure in this advertising market: influencer cartels, where groups of influencers collude to increase their advertising revenue by inflating their engagement. Our theoretical model shows that influencer cartels can improve consumer welfare if they expand social media engagement to the target audience, or reduce welfare if they divert engagement to less relevant audiences. Drawing on the model's insights, we empirically examine influencer cartels using novel datasets and machine learning tools, and derive policy implications.

Influencer Cartels

TL;DR

This work demonstrates the existence of a novel form of market failure in this advertising market: influencer cartels, where groups of influencers collude to increase their advertising revenue by inflating their engagement.

Abstract

Social media influencers account for a growing share of marketing worldwide. We demonstrate the existence of a novel form of market failure in this advertising market: influencer cartels, where groups of influencers collude to increase their advertising revenue by inflating their engagement. Our theoretical model shows that influencer cartels can improve consumer welfare if they expand social media engagement to the target audience, or reduce welfare if they divert engagement to less relevant audiences. Drawing on the model's insights, we empirically examine influencer cartels using novel datasets and machine learning tools, and derive policy implications.
Paper Structure (45 sections, 6 theorems, 13 equations, 13 figures, 12 tables)

This paper contains 45 sections, 6 theorems, 13 equations, 13 figures, 12 tables.

Table of Contents

  1. Introduction
  2. Influencer Marketing and Influencer Cartels
  3. Instagram influencer cartels.
  4. Theoretical Model
  5. Basic Model
  6. The free-riding problem.
  7. Influencer Cartels
  8. Equilibria.
  9. Welfare.
  10. Advertising Market
  11. Benchmark: only natural engagement.
  12. Cartels with advertising market.
  13. Welfare impact of general cartels.
  14. Summary
  15. Data and Measures of Engagement Quality
  16. ...and 30 more sections

Key Result

Proposition 1

There is more engagement in social optimum than in non-cooperative equilibrium, but the additional engagement is of lower quality. In particular,

Figures (13)

  • Figure 1: Google Trends
  • Figure 2: Authors' LDA topic distributions
  • Figure 3: Probability density of authors' similarity to commenters and random users
  • Figure 4: LDA topic shares of commenters from cartels versus non-cartels (natural)
  • Figure A1.1: Main page of https://www.wolfglobal.org/
  • ...and 8 more figures

Theorems & Definitions (6)

  • Proposition 1
  • Proposition 2
  • Proposition 3
  • Corollary 1
  • Corollary 2
  • Proposition 4