Pricing and referrals in diffusion on networks

DOI10.1016/J.GEB.2017.05.011MaRDI QIDQ2013371zbMATH OpenOpenAlexFDO

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

Publication date 17 August 2017

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

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)

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.

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Cites work

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Cited in

(16)

• Optimal nonlinear pricing in social networks under asymmetric network information
• Optimizing referral reward programs under impression management considerations
• Dynamic pricing of new products in competitive markets: a mean-field game approach
• The impact of network topology and market structure on pricing
• The impacts of investor network and herd behavior on market stability: social learning, network structure, and heterogeneity
• Discrimination through versioning with advertising in social networks
• Diffusion in Random Networks: Impact of Degree Distribution
• Impact of network structure on new service pricing
• 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
• Nash equilibria in certain two-choice multi-player games played on the ladder graph
• Bottleneck links, essential intermediaries, and competing paths of diffusion in networks
• Optimal contracting in networks
• Optimal dynamic product development and launch for a network of customers
• The adoption of network goods: evidence from the spread of mobile phones in Rwanda

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