The Effects of the FTC Policy and Affiliation Disclosures on Product Review Video Engagement: Evidence from YouTube

Abstract

Affiliate marketing has become a popular business model on social media platforms, in which social media influencers post affiliate links along with product reviews and earn compensation when users purchase a product through the links. The Federal Trade Commission (FTC) published Guides Concerning the Use of Endorsements and Testimonials in Advertising, which requires influencers to disclose affiliate relations along with product reviews. Despite the prevalence of disclosure policies across nations, academic researchers and policymakers have lacked clear empirical evidence on the effect of the FTC policy on user engagement. In this paper, we examine the effect of the FTC policy on user engagement and the moderating effect of affiliation disclosures. We find that, after the FTC policy, users have significantly less engagement with affiliated content. Furthermore, affiliation disclosure positively moderates the effect of the FTC policy such that affiliated content with disclosures has higher engagement compared to affiliated content without disclosures after the policy. To examine potential underlying mechanisms behind the moderating effect, we examine the heterogeneity in the moderating effect of affiliation disclosure in regard to content creator characteristics and video characteristics. We find that the positive moderating effect of affiliation disclosures is pronounced for content creators with greater experience and higher popularity. Furthermore, the moderating effect of affiliation disclosure is also stronger for product review videos with less subjective and more negative content. Overall, these findings have important policy and practical implications for policymakers, content creators, and social media platforms.

Keywords: product review video, affiliate marketing, information disclosure