The Market for Influence

41 Pages Posted: 4 Aug 2018 Last revised: 9 Nov 2018

See all articles by Itay P Fainmesser

Itay P Fainmesser

Johns Hopkins University - Carey Business School

Andrea Galeotti

University of Essex

Date Written: August 1, 2018

Abstract

Recent developments in social media have morphed the age-old practice of paying influential individuals for product endorsements into a multibillion-dollar industry, extending well beyond celebrity sponsorships. In our model, influencers trade off the increased revenue they obtain from paid endorsements with the negative impact that these have on their followers' engagement and, therefore, on the price influencers receive from marketers. The model clarifies the role of key parameters like search quality and advice transparency in shaping market activity. Recent policies that make paid endorsements more transparent can backfire. In contrast, an increase in the effectiveness of the search technology that matches followers to influencers has unambiguous positive welfare effects.

Suggested Citation

Fainmesser, Itay Perah and Galeotti, Andrea, The Market for Influence (August 1, 2018). Johns Hopkins Carey Business School Research Paper No. 18-13. Available at SSRN: https://ssrn.com/abstract=3207810 or http://dx.doi.org/10.2139/ssrn.3207810

Itay Perah Fainmesser (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://https://sites.google.com/site/itaypfainmesser/home

Andrea Galeotti

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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