Pricing and referrals in diffusion on networks
Matt V. Leduc,
Matthew Jackson () and
Games and Economic Behavior, 2017, vol. 104, issue C, 568-594
When a new product or technology is introduced, potential consumers can learn its quality by trying it, at a risk, or by letting others try it and free-riding on the information that they generate. We propose a dynamic game to study the adoption of technologies of uncertain value, when agents are connected by a network and a monopolist seller chooses a profit-maximizing policy. Consumers with low degree (few friends) have incentives to adopt early, while consumers with high degree have incentives to free ride. The seller can induce high-degree consumers to adopt early by offering referral incentives – rewards to early adopters whose friends buy in the second period. Referral incentives thus lead to a ‘double-threshold strategy’ by which low and high-degree agents adopt the product early while middle-degree agents wait. We show that referral incentives are optimal on certain networks while inter-temporal price discrimination is optimal on others.
Keywords: Network games; Technology adoption; Social learning; Word-of-mouth; Network diffusion; Dynamic pricing; Referral incentives (search for similar items in EconPapers)
JEL-codes: D85 C72 L11 L12 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Pricing and Referrals in Diffusion on Networks (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:104:y:2017:i:c:p:568-594
Access Statistics for this article
Games and Economic Behavior is currently edited by E. Kalai
More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().