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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.

Suggested Citation

  • Mengze Shi, 2003. "Social Network-Based Discriminatory Pricing Strategy," Marketing Letters, Springer, vol. 14(4), pages 239-256, December.
  • Handle: RePEc:kap:mktlet:v:14:y:2003:i:4:p:239-256
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    Citations

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    Cited by:

    1. Tolga Akcura & Kemal Altinkemer & Hailiang Chen, 0. "Noninfluentials and information dissemination in the microblogging community," Information Technology and Management, Springer, vol. 0, pages 1-18.
    2. Ushchev, Philip & Zenou, Yves, 2015. "Price Competition in Product Variety Networks," CEPR Discussion Papers 10862, C.E.P.R. Discussion Papers.
    3. Bloch, Francis & Quérou, Nicolas, 2013. "Pricing in social networks," Games and Economic Behavior, Elsevier, vol. 80(C), pages 243-261.
    4. Jacob Goldenberg & Oded Lowengart & Daniel Shapira, 2009. "Zooming In: Self-Emergence of Movements in New Product Growth," Marketing Science, INFORMS, vol. 28(2), pages 274-292, 03-04.
    5. Jensen, Sissel, 2008. "Two-part tariffs with quality degradation," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 473-489, March.
    6. Chen, Ying-Ju & Zenou, Yves & Zhou, Junjie, 2015. "Competitive pricing strategies in social networks," CEPR Discussion Papers 10857, C.E.P.R. Discussion Papers.
    7. Yubo Chen & Jinhong Xie, 2008. "Online Consumer Review: Word-of-Mouth as a New Element of Marketing Communication Mix," Management Science, INFORMS, vol. 54(3), pages 477-491, March.
    8. repec:kap:qmktec:v:15:y:2017:i:3:d:10.1007_s11129-017-9185-x is not listed on IDEAS
    9. Tingting He & Dmitri Kuksov & Chakravarthi Narasimhan, 2012. "Intraconnectivity and Interconnectivity: When Value Creation May Reduce Profits," Marketing Science, INFORMS, vol. 31(4), pages 587-602, July.
    10. Elias Carroni & Simone Righi, 2015. "Pricing in Social Networks under Limited Information," Working Papers 1503, University of Namur, Department of Economics.

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