The important role of friends, neighbors and colleagues in shaping individual choices has been brought out in a number of studies over the years. The presence of significant 'local' influence in shaping individual behavior suggests that firms, governments and developmental agencies should explicitly incorporate it in the design of their marketing and developmental strategies. This paper develops a framework for the study of optimal strategies in the presence of social interaction. We focus on the case of a single player who exerts costly effort to get a set of individuals – engaged in social interaction – to choose a certain action. Our formulation allows for different types of social interaction and also allows for the player to have incomplete information concerning the connections among individuals. We first show that incorporating information on social interaction can have large effects on the profits of a player. Then, we establish that an increase in the level and dispersion of social interaction can raise or lower the optimal strategy and profits of the player, depending on the content of the interaction. Finally, we study the value of social network information for the player and find that it depends on the dispersion in social connections. The economic interest of these results is illustrated via a discussion of two economic applications: advertising in the presence of word of mouth communication and seeding a network.
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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number
635.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Andrea Galeotti & Sanjeev Goyal & Matthew O. Jackson & Fernando Vega-Redondo & Leeat Yariv, 2008.
"Network Games,"
Economics Working Papers
ECO2008/07, European University Institute.
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