Influencer Cartels

42 Pages Posted: 18 Feb 2021

See all articles by Marit Hinnosaar

Marit Hinnosaar

University of Turin - Collegio Carlo Alberto; University of Nottingham

Toomas Hinnosaar

University of Nottingham - School of Economics

Date Written: February 15, 2021

Abstract

Influencer marketing is a large and growing but mostly unregulated industry. We document the existence and study cartels of influencers. Using a novel dataset of Instagram influencer cartels, we confirm that the cartels increase engagement as intended. But we also 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.

Keywords: collusion, influencers, cartels, free-riding, commitment, cosine similarity, LDA, marketing

JEL Classification: L41, C72, L86, M31, D26

Suggested Citation

Hinnosaar, Marit and Hinnosaar, Toomas, Influencer Cartels (February 15, 2021). Available at SSRN: https://ssrn.com/abstract=3786617 or http://dx.doi.org/10.2139/ssrn.3786617

Marit Hinnosaar (Contact Author)

University of Turin - Collegio Carlo Alberto ( email )

Piazza Arbarello
8
Torino, Torino 10122
Italy

HOME PAGE: http://marit.hinnosaar.net/

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Toomas Hinnosaar

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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