Ershov, Daniel; (2025) Market incentives and advertising disclosure regulations. In: Annabell, Taylor and Fieseler, Christian and Goanta, Catalina and Wildhaber, Isabelle, (eds.) The Hashtag Hustle: Law and Policy Perspectives on Working in the Influencer Economy. (pp. 71-87). Elgar

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Abstract

This chapter reviews recent theoretical and empirical studies in economics and management that model the behaviour of content creators and consumers on social media, and that assess the potential effects of regulations on incentives and outcomes in this market. These studies highlight several mechanisms through which certain forms of advertising transparency regulations could distort content creator incentives and “backfire”. If transparency reduces follower attention to sponsored content and per-sponsored-post revenues, influencers may increase the ad load to maintain total revenues. Transparency regulations should generally increase user trust and engagement with undisclosed posts. However, if regulations are “porous” and fail to capture all sponsored posts, then influencers may have incentives to take on additional advertising contracts in the hope that some sponsored content slips through undetected. This may result in more sponsored, and even more undisclosed sponsored, content online relative to a world without transparency regulations. Empirical evidence from Instagram users in Germany following the strengthening of disclosure regulations provides some evidence for these mechanisms.

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