A Model of Influencer Economy
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.
We thank you the FinTech at Cornell Initiative for generous funding. The authors are especially grateful to Jaden Chen, Yi Chen, Itay Fainmesser, Justin Johnson, Ji Shen and Jian Sun for helpful discussions and comments. They thank Jussi Keppo, Chao Ma, Desheng Ma, Simon Mayer, Fahad Saleh, Haokun Sun, Yu Tong, Marianne Verdier, Jing Wu, Kairong Xiao, Alex Yang, and seminar and conference participants at the 2022 Annual Conference in Digital Economics, the Asian Meeting of the Econometric Society in East and South-East Asia (2022AMES, Tokyo), the 35th Australasian Finance & Banking Conference (AFBC), Cornell Johnson Research Salon, China Fintech Research Conference (CFTRC2022), China International Conference in Finance (CICF2022), Financial Management Association Annual Conference (FMA2022, Atlanta), New Zealand Finance Meeting (NZFM2022), Shanghai University of International Business and Economics and Southwestern University of Finance and Economics for the constructive feedback. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.