Pricing Network Effects: Competition

Itay Fainmesser () and Andrea Galeotti

American Economic Journal: Microeconomics, 2020, vol. 12, issue 3, 1-32

Abstract: We study the practice of influencer marketing in oligopoly markets and its effect on market efficiency. In our model, each consumer is influenced by choices of a subset of other consumers. Firms gather information on consumers' influence and price discriminate using this information. In equilibrium, firms charge premia/subsidize below-/above-average-influential consumers; the premia/discounts depend on the strength of network effects and on how much information firms have on consumers' influence. Influencer marketing leads to inefficient consumer-product matches. Firms' investments in information are strategic complements, leading to a race for information acquisition that erodes welfare and firms' profits but increases consumer surplus.

JEL-codes: D11 D21 D43 D83 D85 L13 M31 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (17)

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DOI: 10.1257/mic.20170226

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