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A theory of consumer referral

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  • Jeong-Yoo Kim
  • Tackseung Jun

Abstract

In this paper, we consider the network as an alternative trading environment to the market. The main distinctive feature of the network transaction is the dependence of buyers' purchasing behavior, which makes all consumers not equally valuable to a seller. We characterize the optimal behavior of a seller and consumers in a network. A seller's strategy of paying referral fees can be understood as a way of price discrimination between more valuable consumers and less valuable ones. Numerical simulations demonstrate that the social network mau be either overutilized (if the referral cost is high) or underutilized (if the referral cost is low)

Suggested Citation

  • Jeong-Yoo Kim & Tackseung Jun, 2004. "A theory of consumer referral," Econometric Society 2004 Far Eastern Meetings 488, Econometric Society.
    • Handle: RePEc:ecm:feam04:488
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    Cited by:

    1. Kim, Beom Jun & Jun, Tackseung & Kim, Jeong-Yoo & Choi, M.Y., 2006. "Network marketing on a small-world network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 360(2), pages 493-504.
    2. Hang-Hyun Jo & Jeoung-Yoo Kim, 2012. "Competitive Targeted Marketing," ISER Discussion Paper 0834, Institute of Social and Economic Research, Osaka University.
    3. 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.
    4. Atayev, Atabek & Janssen, Maarten C. W., 2021. "Information acquisition and diffusion in markets," ZEW Discussion Papers 21-091, ZEW - Leibniz Centre for European Economic Research.
    5. Arbatskaya, Maria & Konishi, Hideo, 2016. "Consumer referrals," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 34-58.
    6. Atabek Atayev & Maarten Janssen, 2021. "Information Acquisition and Diffusion in Markets," Papers 2109.15288, arXiv.org.
    7. Janssen, Maarten & Atayev, Atabek, 2019. "Information Acquisition and Diffusion in Markets," CEPR Discussion Papers 14036, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    network; market; consumer referral; price discrimination;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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