Year: 2024
Type: article
Abstract: We show that in search markets an influencer who recommends a product to her followers improves consumer surplus and total welfare despite the firm paying for her recommendation. As consumers learn their value for the product upon search, they will not buy at the recommended firm if they learn their value is low. The threat of search incentivizes firms to offer the influencer a financial contract involving a commission and incentivizes the influencer to be honest in her recommendation. Provided the influencer's search cost is not too high, she also has an incentive to acquire information and give informative recommendations. These informative equilibria are more difficult to sustain if influencers compete with each other.
Source: The RAND Journal of Economics
Authors: Maarten C. W. Janssen, Cole Williams
Institution: University of Vienna
Language: English
Subfield: Sociology and Political Science
Field: Social Sciences
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,400
OpenAlex ID: W4402340616