Word-of-Mouth Communication and Percolation in Social Networks

Arthur Campbell

American Economic Review, 2013, vol. 103, issue 6, 2466-98

Abstract: This paper develops a model of demand, pricing and advertising in the presence of social learning via word-of-mouth communication between friends. In the model consumers must receive information about a monopolist's product in order to consider purchasing it. The presence of word-of-mouth is not sufficient for demand to be more elastic and prices to be lower compared to an informed population. I derive the comparative static results of connectivity, mean-preserving spread of friendships, and clustering of friends on prices. The optimal targets for advertising are not, generically, the individuals with the most friends.

JEL-codes: L12 L14 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.6.2466
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Citations: View citations in EconPapers (76)

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