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


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
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© 2019 American Economic Association

Date Deposited: 01 Aug 2019 08:55
Date of first compliant deposit: 10 Jul 2019
Subjects: Pricing
Last Modified: 19 Jun 2024 02:05

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