Social Sharing of Information Goods: Implications for Pricing and Profits
Posted: 24 Oct 2012
Date Written: 2012
Social sharing of information goods — wherein a single good is purchased and shared through a network of acquaintances such as friends or coworkers — is a significant concern for the providers of these goods. The effect of social sharing on firm pricing and profits depends critically on two elements: the structure of the underlying consumer network and the mechanism used by groups to decide whether to purchase at a given price. We examine the effect of social sharing under different network structures (decentralized, centralized, and complete), which reflect a range of market conditions. Moreover, we draw from the mechanism design literature to examine several approaches to group decision making. Our results suggest that a firm can benefit from increased social sharing if the level of sharing is already high, enabling a pricing strategy targeted primarily at sharing groups rather than individuals. However, the point at which sharing becomes marginally beneficial for a firm depends on both the distribution of group sizes (which derives from the network structure) and the group decision mechanism. Additional insights are obtained when we extend the model to capture homophily in group formation and the potential that a subset of consumers will never share for ethical reasons.
Keywords: information goods, social networks, pricing, graph theory, cost sharing
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