Fan Cultivation and Monetization With Network Effects: Competing Influencers and Collaborating Brands

Abstract

We investigate fan cultivation and monetization with network effects for competing influencers. Influencers are asymmetric in content-creation ability, and each influencer cooperates with a brand. They monetize their fame by charging a commission fee for selling the cooperating brand’s products to consumers. Influencers compete for fans by adjusting content quality in the fan-cultivation stage, and brands determine product prices in the monetization stage. We first study influencers maximizing only current sales profits and then incorporate long-term benefits through the word-of-mouth effect. We characterize the equilibrium of the quality-pricing game between influencers and brands and reveal how commission rates, content-creation abilities, network effect levels, and word-of-mouth strength affect influencers’ and brands’ equilibrium behavior and profits. We find that a higher revenue share of a brand does not always benefit the brand. Improving an influencer’s ability always helps the influencer-brand channel, whereas raising the commission rate may hurt the channel’s profit, depending on whether the influencer is advantaged (i.e. having a higher content-creation ability or charging a higher commission rate). From the social welfare perspective, cooperating with low-commission-rate influencers is recommended. Moreover, conducting influencer marketing with influencers who have a greater difference in content-creation ability improves social welfare. Allowing for the word-of-mouth effect, strengthening the effect improves the advantaged influencer’s content quality and may lower the disadvantaged influencer’s. Surprisingly, a stronger word-of-mouth effect may make either influencer worse off. We extend the base model by investigating a brand’s influencer cooperation strategy, cooperation with multiple influencers under a commission-and-slotting-fee (a fixed payment made to an influencer) mode, fans with correlated content preferences, and substitutable products with correlated consumer preferences sold by competing brands. These extensions confirm the robustness of the base-model findings and bring new insights. Specifically, as the network effect strengthens, the brand tends to cooperate with a more advantaged influencer. When a brand can cooperate with multiple influencers with a slotting fee, cooperating with one influencer is non-optimal when the slotting fee is low or the network effect is weak. Direct competition between correlated products may make a higher commission rate of the advantaged influencer contribute to more social welfare.