A Model of Influencer Economy

66 Pages Posted: 7 Dec 2021 Last revised: 17 Dec 2021

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management

Siguang Li

Cornell University, Dept. of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 20, 2021

Abstract

We model an influencer economy in which brand owners and sellers depend on influencers to attract consumers while competing in both influencer and product markets. As technologies governing marketing outreach improve, the equilibrium features non-monotonicities in influencer market concentration, payoffs, and distributional inequality. Influencer heterogeneity and horizontal product differentiation are substitutes; small style differences complement vertical product differentiation while large differences substitute. Moreover, assortative matching between sellers and influencers occur under endogenous influence, with the maximum horizontal differentiation principle recovered in the limit of costless style selection. Meanwhile, the sellers’ bargaining power counteracts the influencers’ tendency to over-invest in influence power and they jointly determine the direction and magnitude of the sub-optimal acquisition. Finally, regulations for balanced seller-influencer matching can encourage seller competition under single dimensional seller-influencer heterogeneity. But uni-directional exclusivity contracts are welfare-improving for sufficiently differentiated products and uncongested influencers’ markets.

Keywords: Creator Economy, Digital Economy, Influencer Marketing, Industrial Organization, Product Differentiation

JEL Classification: M31, M37, L11, L20, L51

Suggested Citation

Cong, Lin and Li, Siguang, A Model of Influencer Economy (November 20, 2021). Available at SSRN: https://ssrn.com/abstract=3975727 or http://dx.doi.org/10.2139/ssrn.3975727

Lin Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.com/

Siguang Li (Contact Author)

Cornell University, Dept. of Economics ( email )

404 Uris Hall
Ithaca, NY Tompkins 14853
United States

HOME PAGE: http://www.siguangli.com

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