Influencer Marketing and Product Competition

Abstract

With the rise of social platforms and digital media (e.g., videos, (live)streaming, blogging), firms and brand owners increasingly depend on influencers to attract consumers, who care about both product quality and consumer-influencer interaction. Sellers thus compete in both influencer and product markets. We develop a theory to understand the influencer labor market and its interaction with product competition, under a plausible specification of influencers' value added. We find: (i) more powerful influencers sell better quality products for sellers with weaker direct-sale capacity, facilitating seller competition; (ii) advances in the intermediation technology can lead to non-monotonic changes in influencers' payoff and income inequality; (iii) style pluralism mitigates market concentration by horizontally differentiating the consumer experience but serves as either complements (intermediate dispersion) or substitutes (small or large dispersions) to vertical product differentiation; and (iv) influencers may inefficiently under-invest in consumer outreach and unidirectional exclusivity can improve welfare in less competitive markets. Together, our findings highlight the novelty of the influencer economy and establish its theoretical baselines for future studies.

Keywords: Creator Economy, Digital Economy, Internet Celebrity, Industrial Organization, Streaming

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