Economics of Social Media Fake Accounts

The reports of fake social media accounts have caused increasing concerns about the economic and social viability of social media. But the shadow economy around social media fake accounts is still poorly understood, due to the lack of data, transparency, and reliable way of detecting fake accounts. This research uses game-theoretical analysis to understand what makes social media influencers buy fake accounts, how the existence of fake accounts impact consumers, advertisers, social media platforms, and the overall social welfare. The central contribution of this paper is the characterization of equilibrium scenarios. We find that in a pooling equilibrium, only the influencer with low content quality (‘‘low type’’) buys fake accounts while the high type one does not. However, in the ‘‘costly-separating’’ equilibrium, the purchasing behavior flips, i.e., only the influencer with high content quality buys fake accounts while the low type does not. In addition, in the ‘‘costless separating’’ equilibrium, no influencer purchases fake accounts. In terms of the efficiency of the platform-initiated fake accounts detection, we find that the platform could under-detect, over-detect, or efficiently detect the fake accounts. Thus, we may not rely entirely on social media platforms to self-regulate their fake accounts.