Link value, market scenario and referral networks

Yongli Li, Peng Luo and Paolo Pin

Journal of Economic Behavior & Organization, 2021, vol. 181, issue C, 135-155

Abstract: From the viewpoint of a monopolist who is selling a product in a market where peer communication matters, a social network of consumers is a valuable resource that can elevate a company's revenue if used effectively. In order to understand and realize the potential value within a social network, this paper focuses on measuring the link value in marketing-oriented scenarios and further adopting the measured value to propose profitable referral strategies. We measure the link value by considering how much a company's revenue changes when a new link is added. Moreover, different market scenarios are considered, including different degrees of price discrimination and different levels of information. More interestingly, we identify the relationship between the measured link value and the (weighted) Bonacich centrality in various market scenarios. Then, we design and propose profitable referral networks based on measured link value, which serves as a new perspective for designing a profitable referral mechanism. From numerical examples, several properties are summarized in order to determine how the measured link value is influenced by the interaction between market scenarios and network structures. Furthermore, a series of simulations have also been conducted to validate the effectiveness of the proposed referral networks as well as to provide insight into managerial practices.

Keywords: Market behavior; Market scenarios; Link value; Referral network; Network economics (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:181:y:2021:i:c:p:135-155

DOI: 10.1016/j.jebo.2020.11.032

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