Competing for Customers in a Social Network

Pradeep Dubey, Rahul Garg and Bernard De Meyer
Additional contact information
Rahul Garg: IBM India Research Lab

No 1591, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: There are many situations in which a customer's proclivity to buy the product of any firm depends not only on the classical attributes of the product such as its price and quality, but also on who else is buying the same product. We model these situations as games in which firms compete for customers located in a "social network." Nash Equilibrium (NE) in pure strategies exist in general. In the quasi-linear version of the model, NE turn out to be unique and can be precisely characterized. If there are no a priori biases between customers and firms, then there is a cut-off level above which high cost firms are blockaded at an NE, while the rest compete uniformly throughout the network. We also explore the relation between the connectivity of a customer and the money firms spend on him. This relation becomes particularly transparent when externalities are dominant: NE can be characterized in terms of the invariant measures on the recurrent classes of the Markov chain underlying the social network. Finally we consider convex (instead of linear) cost functions for the firms. Here NE need not be unique as we show via an example. But uniqueness is restored if there is enough competition between firms or if their valuations of clients are anonymous.

Keywords: Social network; Game theory; Nash equilibrium; Competition game on a social network (search for similar items in EconPapers)
JEL-codes: A14 C72 D11 D21 L1 L2 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2006-11
New Economics Papers: this item is included in nep-cse, nep-mic, nep-net and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Competing for customers in a social network (2014)
Working Paper: Competing for customers in a social network (2014)
Working Paper: Competing for customers in a social network (2014)
Working Paper: Competing for Customers in a Social Network (R) (2013)
Working Paper: Competing for Customers in a Social Network (R) (2012)
Working Paper: Competing for Customers in a Social Network (R) (2012)
Working Paper: Competing for Customers in a Social Network (2012)
Working Paper: Competing for Customers in a Social Network (2006)
Working Paper: Competing for Customers in a Social Network (2006)
Working Paper: Competing for Customers in a Social Network (2006)
Working Paper: Competing for Customers in a Social Network (2006)
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