A Model of Influencer Economy

Lin William Cong (叢林) Siguang Li - May 22, 2023

Working Paper No.   00101-00

With the rise of social media and streaming platforms, firms and brand-owners increasingly depend on influencers to attract consumers, who care about both common product quality and consumer-influencer interaction. Sellers thus compete in both influencer and product markets. As outreach and distribution technologies improve, influencer payoffs and income inequality change non-monotonically. More powerful influencers sell better-quality products, but pluralism in style mitigates market concentration by effectively differentiating consumer experience. Influencer style dispersion substitutes horizontal product differentiation but serves as either complement (small dispersion) or substitute (large dispersion) to vertical product differentiation. The assortative matching between sellers and influencers remains under endogenous influence-building, with the maximal differentiation principle recovered in the limit of costless style acquisition. Meanwhile, influencers may under-invest in consumer outreach to avoid exacerbating price competition.  Finally, while requiring balanced seller-influencer matching can encourage seller competition, uni-directional exclusivity can improve welfare for sufficiently differentiated products and uncrowded influencer markets.

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Creator Economy Digital Economy Influencer Marketing Industrial Organization