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Pricing in social networks

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  • Bloch, Francis
  • Quérou, Nicolas

Abstract

We analyze the problem of optimal monopoly pricing in social networks where agents care about consumption or prices of their neighbors. We characterize the relation between optimal prices and consumersʼ centrality in the social network. This relation depends on the market structure (monopoly vs. oligopoly) and on the type of externalities (consumption versus price). We identify two situations where the monopolist does not discriminate across nodes in the network (linear monopoly with consumption externalities and local monopolies with price externalities). We also analyze the robustness of the analysis with respect to changes in demand, and the introduction of bargaining between the monopolist and the consumer.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 80 (2013)
Issue (Month): C ()
Pages: 243-261

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Handle: RePEc:eee:gamebe:v:80:y:2013:i:c:p:243-261

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Social networks; Monopoly pricing; Network externalities; Reference price; Centrality measures;

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References

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  1. Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Coralio Ballester & Antoni Calvó-Armengol & Yves Zenou, 2006. "Who's Who in Networks. Wanted: The Key Player," Econometrica, Econometric Society, vol. 74(5), pages 1403-1417, 09.
  3. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  4. Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 709-24, October.
  5. Bruno Jullien, 2011. "Competition in Multi-sided Markets: Divide and Conquer," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 186-220, November.
  6. Mohamed Belhaj & Yann Bramoullé & Frédéric Deroïan, 2012. "Network Games under Strategic Complementarities," Working Papers halshs-00793439, HAL.
  7. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  8. A. Banerji & Bhaskar Dutta, 2008. "Local network externalities and market segmentation," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-13, Indian Statistical Institute, New Delhi, India.
  9. Christian Ghiglino & Sanjeev Goyal, 2010. "Keeping Up with the Neighbors: Social Interaction in a Market Economy," Journal of the European Economic Association, MIT Press, vol. 8(1), pages 90-119, 03.
  10. Ballester, Coralio & Calvó-Armengol, Antoni, 2010. "Interactions with hidden complementarities," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 397-406, November.
  11. Mengze Shi, 2003. "Social Network-Based Discriminatory Pricing Strategy," Marketing Letters, Springer, vol. 14(4), pages 239-256, December.
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Citations

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Cited by:
  1. Pradeep Dubey & Rahul Garg & Bernard De Meyer, 2013. "Competing for Customers in a Social Network (R)," Department of Economics Working Papers 13-01, Stony Brook University, Department of Economics.
  2. Itay P. Fainmesser & Andrea Galeotti, 2013. "The Value of Network Information," Working Papers 2013-13, Brown University, Department of Economics.
  3. Lautier, Delphine & Ling, Julien & Raynaud, Franck, 2014. "Systemic Risk in Commodity Markets: What Do Trees Tell Us About Crises?," Economics Papers from University Paris Dauphine 123456789/13632, Paris Dauphine University.

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