Consumer referrals

Maria Arbatskaya and Hideo Konishi

International Journal of Industrial Organization, 2016, vol. 48, issue C, 34-58

Abstract: In many industries, firms reward their customers for making referrals. We analyze a monopoly’s optimal policy mix of price, advertising intensity, and referral fee when buyers choose to what extent to refer other consumers to the firm. When the referral fee can be optimally set by the firm, it will charge the standard monopoly price. The firm always advertises less when it uses referrals. We extend the analysis to the case where consumers can target their referrals. In particular, we show that referral targeting could be detrimental for consumers in a low-valuation group.

Keywords: Consumer referral policy; Word of mouth; Referral reward program; Targeted advertising; Targeted referrals (search for similar items in EconPapers)
JEL-codes: C7 D4 D8 L1 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:48:y:2016:i:c:p:34-58

DOI: 10.1016/j.ijindorg.2016.06.001

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