A theory of consumer referral

No 488, Econometric Society 2004 Far Eastern Meetings from Econometric Society

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)

Keywords: network; market; consumer referral; price discrimination (search for similar items in EconPapers)
JEL-codes: D40 L10 (search for similar items in EconPapers)
Date: Written 2004-08-11

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Journal Article: A theory of consumer referral (2008)
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