Influencer Cartels

Influencer marketing is a large and growing but mostly unregulated industry. The paper presented in this Mannheim Virtual IO Seminar documents the existence and study cartels of influencers. Using a novel dataset of Instagram influencer cartels, the authors confirm that the cartels increase engagement as intended. But they also show that engagement from non-specific cartels is of lower quality, whereas engagement from a topic-specific cartel may be as good as natural engagement. The authors then build a theoretical model to understand the behavior and welfare implications of influencer cartels. While influencer cartels may sometimes improve welfare by mitigating the free-rider problem, they can also overshoot and create low-quality engagement. The problem of fake engagement is substantially worse if the advertising market rewards engagement quantity. Therefore topic-specific cartels may sometimes be welfare-improving, whereas typical non-specific cartels hurt everyone.