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Consumer Referrals

Author

Listed:
  • Maria Arbatskaya

    (Emory University)

  • Hideo Konishi

    (Boston College)

Abstract

In many industries, firms reward their customers for making referrals. We analyze the optimal policy mix of price, advertising intensity, and referral fee for monopoly when buyers choose to what extent to refer other consumers to the firm. We find that the firm uses its referral fee, but not its price or advertising level, to manage referrals. When consumers hold correct expectations about the true quality of the product, the firm charges the standard monopoly price. The firm always advertises less when it uses referrals. We extend the analysis to the case where consumer referrals can be targeted.

Suggested Citation

  • Maria Arbatskaya & Hideo Konishi, 2013. "Consumer Referrals," Boston College Working Papers in Economics 851, Boston College Department of Economics, revised 01 Nov 2016.
    • Handle: RePEc:boc:bocoec:851
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    References listed on IDEAS

    as
    1. Eyal Biyalogorsky & Eitan Gerstner & Barak Libai, 2001. "Customer Referral Management: Optimal Reward Programs," Marketing Science, INFORMS, vol. 20(1), pages 82-95, August.
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    8. Lola Esteban & Agustín Gil & Jose M. Hernández, 2001. "Informative Advertising and Optimal Targeting in a Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 161-180, June.
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    1. Arbatskaya Maria & Konishi Hideo, 2014. "Managing Consumer Referrals on a Chain Network," Review of Network Economics, De Gruyter, vol. 13(1), pages 69-94, March.

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    More about this item

    Keywords

    consumer referral policy; word of mouth; referral reward program; targeted advertising; product awareness;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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