Abstract
Shill advertising occurs when sellers confidentially pay influencers to transmit favorable messages about a product. Here, we present a two-period model involving informed sellers, influencers, and second-period followers. Our model addresses why sellers of low-quality products engage more in shill advertising, despite the longstanding argument that high-quality sellers advertise more to encourage repeat purchases. We show that high-quality sellers have less incentive to engage in shill advertising, as doing so undermines the credibility of word-of-mouth communication from first-period influencers. This new insight into advertising behavior is primarily driven by what we call the “credibility effect”.
•Shill advertising involves sellers confidentially paying influencers for sharing favorable product information.•We examine why low-quality product sellers engage in more shill advertising.•High-quality sellers have less incentive to engage in shill advertising to maintain the credibility of word-of-mouth communication.