Pricing in social networks

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14 January 2014

We analyze the problem of optimal monopoly pricing in social networks in order to characterize the influence of the network topology on the pricing rule. It is shown that this influence depends on the type of providers (local versus global monopoly) and of externalities (consumption versus price). We identify two situations where the monopolist does not discriminate across nodes in the network (global monopoly with consumption externalities and local monopoly with price externalities) and characterize the relevant centrality index used to discriminate among nodes in the other situations. We also analyze the robustness of the analysis with respect to changes in demand, and the introduction of bargaining between the monopolist and the consumer.