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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.

Suggested Citation

  • Bloch, Francis & Quérou, Nicolas, 2013. "Pricing in social networks," Games and Economic Behavior, Elsevier, vol. 80(C), pages 243-261.
    • Handle: RePEc:eee:gamebe:v:80:y:2013:i:c:p:243-261
    DOI: 10.1016/j.geb.2013.03.006
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    More about this item

    Keywords

    Social networks; Monopoly pricing; Network externalities; Reference price; Centrality measures;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other

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