Pricing and referrals in diffusion on networks

DOI10.1016/J.GEB.2017.05.011zbMATH Open1393.91069arXiv1509.06544OpenAlexW2210603527MaRDI QIDQ2013371FDOQ2013371

Matthew O. Jackson, Matt V. Leduc, Ramesh Johari

Publication date: 17 August 2017

Published in: Games and Economic Behavior (Search for Journal in Brave)

Abstract: When a new product or technology is introduced, potential consumers can learn its quality by trying the product, at a risk, or by letting others try it and free-riding on the information that they generate. We propose a dynamic game to study the adoption of technologies of uncertain value, when agents are connected by a network and a monopolist seller chooses a policy to maximize profits. Consumers with low degree (few friends) have incentives to adopt early, while consumers with high degree have incentives to free ride. The seller can induce high-degree consumers to adopt early by offering referral incentives - rewards to early adopters whose friends buy in the second period. Referral incentives thus lead to a `double-threshold strategy' by which low and high-degree agents adopt the product early while middle-degree agents wait. We show that referral incentives are optimal on certain networks while inter-temporal price discrimination (i.e., a first-period price discount) is optimal on others, and discuss welfare implications.

Full work available at URL: https://arxiv.org/abs/1509.06544

zbMATH Keywords

social learningdynamic pricingtechnology adoptionword-of-mouthnetwork gamesnetwork diffusionreferral incentives

Mathematics Subject Classification ID

Dynamic games (91A25) Microeconomic theory (price theory and economic markets) (91B24)

Cites Work

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Cited In (12)

• Nash Equilibria in Certain Two-Choice Multi-Player Games Played on the Ladder Graph
• Dynamic pricing of new products in competitive markets: a mean-field game approach
• Impact of Network Structure on New Service Pricing
• The impacts of investor network and herd behavior on market stability: social learning, network structure, and heterogeneity
• The impact of network topology and market structure on pricing
• Diffusion in Random Networks: Impact of Degree Distribution
• Discrimination through versioning with advertising in social networks
• The groupwise-pivotal referral auction: core-selecting referral strategy-proof mechanism
• Marketing strategy selection of referral reward under social network: RRWS, RRMS, or dual strategy?
• Designing a referral reward program in freemium: the role of network externalities
• Optimal Nonlinear Pricing in Social Networks Under Asymmetric Network Information
• Optimal contracting in networks

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