Optimal Pricing with Sequential Consumption in Networks

Abstract

In this paper, we consider a model with a monopoly firm who sells social goods sequentially to a group of customers in a network. We show that, with symmetric social interactions, the optimal pricing under arbitrary launch sequence is independent of customers' network positions, the launch sequence, and the underlying social interaction relations among customers. This generalizes the previous network-independent prices in the simultaneous-launch case. Therefore, for any given sequence, the firm can obtain a higher profit by offering sequentially to some groups of simultaneous-move customers. As a consequence, the optimal sequence turns out to be a chain structure. Moreover, we establish the pecking order by which the firm shall approach customers following the sequence of descending valuation-cost margins, and with homogeneous margins any chain attains the optimal revenue. The sequence independence of the optimal pricing does not hold when either the social interaction is asymmetric or the firm is restricted to use uniform pricing. Nevertheless, the profit optimality of the chain structure extends to both variants of the basic model.

Keywords: social goods, network games, pricing, sequential launch

JEL Classification: L14, L13, D43, D85