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Beyond BLS

Beyond BLS briefly summarizes articles, reports, working papers, and other works published outside BLS on broad topics of interest to MLR readers.

July 2023

The significance of social media influencers in today’s economy

Summary written by: John C. Roach

Social media influencers have their own following and help brand owners market their products to potential customers. In today’s economy, influencers include content creators, celebrities, streamers, and idols from diverse backgrounds.

In a recent paper, “A model of influencer economy” (National Bureau of Economic Research, Working Paper 31243, May 2023), authors Lin William Cong and Siguang Li cite from outside research that the influencer marketing economy grew in 2021, from nearly 2.0 billion to almost 13.8 billion, with approximately 50 million content creators. To research this extensive growth, in their paper, Cong and Li explore the matching of brand owners and influencers, the shaping of product difference and pricing, and the negotiating between brand owners and influencers and technology’s part in this process.

The authors explain that assortative matching is a process in which sellers of higher-end products usually work with influencers with a larger following to better showcase their products This pairing is vital in determining the success of a seller’s brand.

Regarding product difference, research has shown that a smaller difference between influencer styles will require sellers to differentiate their products to decrease competition, which could reduce prices. However, when the influencer has a wide style margin, sellers have no incentive to differentiate their products, because unique influencers offer sellers a more rigid demand for their unique products.

Authors Lin William Cong and Siguang Li find that as cheaper technology emerges, influencers can more easily attract followers and sellers can better showcase their products. This technology can benefit both sellers and influencers by ease in which products have a large showcase. The benefit to influencers is potentially having a larger pool of sellers to sponsor them. Furthermore, as the price of technology decreases, which helps saturate the influencer market, sellers will gain more bargaining power and flexibility to pay influencers less, because of the larger influencer base. Finally, the authors note that regulations that balance seller-influencer matching can encourage seller competition within a smaller group. Straight exclusivity (which restricts a party from buying from, selling to, or otherwise partnering with anyone other than the party on the contract), on the other hand, can improve success for sufficiently evolving products and open influencer markets.