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Strategic use of social media influencer marketing

Author

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  • Foerster, Manuel
  • Hellmann, Tim
  • Vega-Redondo, Fernando

Abstract

We set out a model of social media influencer marketing in which a firmmay hire influencers to inform consumers about an innovation. Influencersgenerate sales through purchases of their followers and followers' social networks and set prices for their endorsements. In turn, the firm decides whichinfluencers to hire, which story to convey via the influencers, and sets the retail price of the innovation. In equilibrium, influencers price according totheir marginal contribution to industry profits and increase consumers' willingnessto pay with their stories. In particular, under a weak condition itis the influencers with the most reactive followers who are hired and obtainpositive profits in equilibrium. Finally, we show that the firm may be betteroff if it could commit to hire fewer influencers.

Suggested Citation

  • Foerster, Manuel & Hellmann, Tim & Vega-Redondo, Fernando, 2024. "Strategic use of social media influencer marketing," UC3M Working papers. Economics 43985, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:43985
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    References listed on IDEAS

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