The Effects of Advertising Disclosure Regulations on Social Media: Evidence from Instagram

We study the effects of advertising disclosure regulations in social media markets. 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 strengthening of 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 substantial adoption of disclosure but also a 12% increase in sponsored content and an increase in the share of undisclosed-sponsored content consumers are exposed to. We also find reductions in engagement, suggesting that followers were likely negatively affected.