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Pricing in social networks

Author

Listed:
  • Francis Bloch

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

  • Nicolas Quérou

    (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

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 consumers' 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

  • Francis Bloch & Nicolas Quérou, 2013. "Pricing in social networks," PSE-Ecole d'économie de Paris (Postprint) hal-01013603, HAL.
    • Handle: RePEc:hal:pseptp:hal-01013603
    DOI: 10.1016/j.geb.2013.03.006
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    Keywords

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    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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