publication . Preprint . 2014

Managing Consumer Referrals in a Chain Network

Maria Arbatskaya; Hideo Konishi;
Open Access
  • Published: 10 Jan 2014
Abstract
We consider the optimal pricing and referral strategy of a monopoly that uses a simple consumer communication network (a chain) to spread product information. The first-best policy with fully discriminatory position-based referral fees involves standard monopoly pricing and referral fees that provide consumers with strictly positive referral incentives. Effective price discrimination among consumers based on their positions in the chain occurs in both the first-best solution and the second-best solution (with a common referral fee).
Subjects
free text keywords: communication network, consumer referral policy, referral fee, price discrimination, jel:D4, jel:D8, jel:L1

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