How Influencer Marketing Shapes Competition Between Established and Emerging Firms

Brands are increasingly leveraging influencers for product promotion. Whereas emerging brands leverage influencers’ informative and persuasive effect to build consumer awareness and increase profits through collaboration, established firms that have advantages in brand awareness and loyalty may attempt to prevent such collaboration. We build a model to study the competition between an emerging firm and an established firm, both with and without an influencer’s presence. We find that the presence of an influencer may lead the frequencies of firms’ discounts to change in opposite directions. Furthermore, when the established firm has a moderate advantage in consumer loyalty over its emerging competitor, its profit suffers the most from the influencer’s presence. Interestingly, when an influencer has either a large follower size or strong persuasion (but not both), the emerging firm collaborates with the influencer, and the established firm avoids direct competition by targeting different consumer segments.