December 10, 2018, 14:00–15:30
Room MS 001
Industrial Organization seminar
Consumers rely on intermediaries ("influencers") such as social media recommendations to provide information about products. The advice may be mixed with endorsement in a way that is unobservable to the follower, creating a trade-off for influencers between the best advice and the most revenue. This paper models the dynamic relationship between an influencer and a follower. The relationship evolves between periods of less and more revenue. The model can provide insight into policies like the Federal Trade Commission's mandatory disclosure rules. An opt-in policy may be superior: it deregulates influencers who are reaping the rewards of past good advice.