Externalities Social Value And Word Of Mouth

Pier-André Bouchard St-Amant ()

No 1301, Working Paper from Economics Department, Queen's University

Abstract: I examine an environment where advertisers can "seed" word-of-mouth advertising by providing initial information about a product to specific users of a social network. Discussion over a social network generates spillover effects for firms when consumers can use the social network to inform each other about products. When a firm can exploit a social network's structure, it can increase its sales. However, when the network formation process is costly, firms free-ride on such costs at the expense of agents on the network. If agents can form coalitions, I show that they can recoup the value of this externality by charging a toll. When users actively modify the information, generating word-of-mouth advertising about a product provides a "social value." This social value stems from the discussions that agents have about the product, without any intervention. Since this process occurs regardless of the firm's actions, the firm cannot capture such valuation. The opinion leaders, or highly regarded agents on the network, play a key role in the formation of this social value.

Keywords: Network; Word of Mouth; Externalities; Social Value (search for similar items in EconPapers)
JEL-codes: D83 D85 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2013-01
New Economics Papers: this item is included in nep-com, nep-mic, nep-mkt and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1301.pdf First version 2013 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1301

Access Statistics for this paper

More papers in Working Paper from Economics Department, Queen's University Contact information at EDIRC.
Bibliographic data for series maintained by Mark Babcock ().