Pricing network effects: competition

Fainmesser, I P and Galeotti, A (2020) Pricing network effects: competition. American Economic Journal: Microeconomics, 12 (3). pp. 1-32. ISSN 1945-7669 OPEN ACCESS

Abstract

We study the practice of in influencer marketing in oligopoly markets and its effect on market effciency. In our model, each consumer is influenced by choices of a subset of other consumers. Firms gather information on consumers influence and price discriminate using this information. In equilibrium, firms charge premia/subsidize below/above-average-influential consumers; the premia/discounts depend on the strength of network effects and on how much information firms have on consumers influence. Influencer marketing leads to inefficient consumer-product matches. Firms investments in information are strategic complements, leading to a race for information acquisition that erodes welfare and firms profits but increases consumer surplus.

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Item Type: Article
Subject Areas: Economics
Additional Information:

© 2019 American Economic Association

Date Deposited: 01 Aug 2019 08:55
Date of first compliant deposit: 10 Jul 2019
Subjects: P > Pricing
C > Competition
Last Modified: 19 Apr 2021 15:45
URI: https://lbsresearch.london.edu/id/eprint/1192
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