Marit Hinnosaar (Collegio Carlo Alberto) (webinar)

“Influencer Cartels”

Abstract: Influencer marketing is a large and growing but mostly unregulated industry. Instead of being paid for the success of the current marketing campaign, most influencers are paid based on their characteristics, including engagement (likes and comments). This provides incentives for fraudulent behavior — for inflating engagement. In this paper, we study influencer cartels, where groups of influencers collude to increase engagement in order to improve their market outcomes. Using a novel dataset of Instagram influencer cartels, we confirm that the cartels increase engagement as intended. Importantly, we show that engagement from non-specific cartels is of lower quality, whereas engagement from a topic-specific cartel may be as good as natural engagement. We then build a theoretical model to understand the behavior and welfare implications of influencer cartels. While influencer cartels may sometimes improve welfare by mitigating the free-rider problem, they can also overshoot and create low-quality engagement. The problem of fake engagement is substantially worse if the advertising market rewards engagement quantity. Therefore topic-specific cartels may sometimes be welfare-improving, whereas typical non-specific cartels hurt everyone.

Joint with Toomas Hinnosaar.