We study the effects of advertising disclosure regulations in social media markets. Theory generates ambiguous predictions about the effects of regulations on the equilibrium amount of advertising content, user engagement and welfare. Using data from a large sample of Instagram influencers in Germany and Spain and a difference-in-differences approach, we empirically evaluate the effects of German disclosure regulations on post content and follower engagement. We measure whether posts include suggested disclosure terms and use text-based approaches (keywords, machine learning) to assess whether a post is sponsored. We show a substantial adoption of disclosure after regulations, but also an increase in sponsored content including undisclosed sponsored content. We also find reductions in engagement, suggesting that followers were likely negatively affected.
This paper considers a durable object that is repeatedly resold among a potential buyers that trade bilaterally, so that markets are thin at any point in time. The results highlight differences between possible contracting environments which, in practice, have become especially important as record keeping technologies improve. Traditional ownership, where owners can set prices unilaterally, leads to reduction in trade through markups; opportunities for future resale increase the reduction in trade at any point in time. Markups decline over time. When owners can collect a simple linear royalty on future sales, subsidy is optimal so it is possible that distortions remain but are in the reverse direction, with too much turnover and even inefficient transactions from higher to lower valuation consumers. This suggests that fixed percentage perpetual royalties, as mandated in some countries and proposed in others, may be counterproductive. A dynamic contract designed to maximize profits of the first owner achieves efficiency in all but the first sale, despite not achieving full surplus extraction at any point. The first sale is distorted exactly as a one time sale, which is a smaller distortion than any transaction under traditional ownership. The dynamic contracts can be interpreted as nonlinear perpetual royalties, a form of payment that has increasingly been discussed especially in digital art markets. The results highlight how these markets shape markup dynamics, as well as the role of perpetual royalties. Such price discrimination can increase efficiency, especially in resale transactions.
Since 2003, the website Pitchfork classifies three new albums as "Best New Music" (BNM). We examine the effect on music demand of this form of expert advice. Based on a Fuzzy Regression Discontinuity design, we estimate (with statistical precision) that BNM certification increases the number of listeners by four-fold and the number of plays by six-fold. A series of robustness checks suggest that these are causal effects of the BNM seal that go beyond intrinsic album quality and quality scores by other critics.
