Influencer marketing with fake followers

Abstract

Influencer marketing is a practice where an advertiser pays a popular social media user (influencer) in exchange for brand endorsement. We characterize the advertiser's optimal contract when the influencer can inflate her publicly displayed follower count by buying fake followers. We derive optimal contracts for two scenarios: (a) \pre sign-up" where a potential influencer is not yet on a given social media platform, but has a promise of a following and (b) \post sign-up" where the influencer is on social media and privately knows her true follower count. The optimal contract stipulates a fixed payment equal to the influencer's outside option and a variable payment increasing in her follower count. In the pre sign-up scenario, the advertiser extracts all the surplus and the equilibrium features truthful display of the influencer's follower count. However in the post sign-up scenario, the advertiser must pay over and above the influencer's outside option; and needs to tolerate high levels of faking. Our results suggest that advertisers are better o_ hiring potential influencers with authentic, social media-independent mass appeal rather than the more common practice of hiring them based on merely their follower count.