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Pricing network effects: competition

Journal

American Economic Journal: Microeconomics

Subject

Economics

Publishing details

American Economic Journal: Microeconomics 2020 Vol 12:3 p 1-32

Authors / Editors

Fainmesser I P;Galeotti A

Biographies

Andrea Galeotti

Publication Year

2020

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.

Available on ECCH

No


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