Advertising regulations harm social media influencers, followers, and marketers alike

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Social media has given rise to a new breed of influential figures and brand ambassadors in recent years. Micro- and even nano-influencers—social media users active on platforms such as Instagram and YouTube who have access to anywhere from several hundreds to hundreds of thousands of followers—are increasingly securing endorsement deals and contracts for sponsored content.

In 2017 alone, marketers around the world spent $570 million on social media marketing, according to a report in eMarketer. The New York Times reports that the social media influencer industry is expected to exceed a $10 billion value by 2020.

But a new study from the Johns Hopkins Carey Business School shows that regulations meant to protect consumers from predatory social media marketing tactics actually contribute to a decrease in competition between influencers, causing the overall amount of paid content to rise and audience engagement to plummet.

In such a cycle, the study found, all social media stakeholders lose: the followers, the influencers, and the marketers alike.

For the study, Carey economist Itay Fainmesser and co-author Andrea Galeotti from the London Business School created a mathematical model of the complex interactions and decisions of social media influencers, followers, and marketers under different parameters. Typically, social media influencers build a following by creating attractive content and providing trusted advice in a specific area. Marketers will then approach influencers, offering to pay them to promote products to their audiences. In the early days of social media, followers usually did not know whether an influencer was paid for a recommendation. The uncertainty about whether a post was sponsored had the potential to undermine the audience's trust in the influencer, especially if the product being marketed turned out to be low-quality.

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