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Social Network-Based Discriminatory Pricing Strategy

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  • Mengze Shi

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    Abstract

    In this paper we study such pricing practices like MCI's Friends and Family Program that employ price discriminations on the basis of callers' social ties. We characterize a consumer's personal communication network by the number of strong and weak ties that the consumer has. We then derive a consumer's demand for communication service from the structure of the consumer's personal communication network. A monopoly firm's social network-based discriminatory pricing strategy consists of a menu of price plans, each plan targeting at one type of social networks. Our paper provides useful guidelines for the design of optimal social network-based discriminatory pricing strategies. We show that a firm may offer price discounts to communications between "friends and family members" in order to extract a larger profit from communications between callers with weak ties.

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    Bibliographic Info

    Article provided by Springer in its journal Marketing Letters.

    Volume (Year): 14 (2003)
    Issue (Month): 4 (December)
    Pages: 239-256

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    Handle: RePEc:kap:mktlet:v:14:y:2003:i:4:p:239-256

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    Web page: http://www.springerlink.com/link.asp?id=100312

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    Cited by:
    1. Jensen, Sissel, 2008. "Two-part tariffs with quality degradation," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 473-489, March.
    2. Bloch, Francis & Quérou, Nicolas, 2013. "Pricing in social networks," Games and Economic Behavior, Elsevier, vol. 80(C), pages 243-261.

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