Social Media Advertising and Fake Followers

Abstract

Influencer marketing is a practice where an advertiser pays a popular social media user (influencer) in exchange for brand endorsement. We develop an analytical model in a contract-theoretic setting between an advertiser and an influencer who can inflate her publicly displayed follower count by buying fake followers; and take a hidden action to legitimately increase her true number of followers. There is an imperfect audit to detect fraud, which leads to increased costs for the influencer. We show that the optimal contract exhibits high faking for influencers with intermediate follower counts, while faking levels are low for those with very small or very large true follower counts. Audits deter fraud only when accompanied by high penalties, but restitutions paid to the advertiser encourage more fraud. We further show that revenue sharing deters faking and incentivizes influencers to increase their true number of followers.