Word-of-Mouth Communication and Percolation in Social Networks
AbstractThis paper develops a model of demand, pricing and advertising in the presence of social learning via word-of-mouth communication between friends. In the model consumers must receive information about a monopolist's product in order to consider purchasing it. The presence of word-of-mouth is not sufficient for demand to be more elastic and prices to be lower compared to an informed population. I derive the comparative static results of connectivity, mean-preserving spread of friendships, and clustering of friends on prices. The optimal targets for advertising are not, generically, the individuals with the most friends.
CitationCampbell, Arthur. 2013. "Word-of-Mouth Communication and Percolation in Social Networks." American Economic Review, 103 (6): 2466-98. DOI: 10.1257/aer.103.6.2466
- L12 Monopoly; Monopolization Strategies
- L14 Transactional Relationships; Contracts and Reputation; Networks