The Value of Network Information

41 Pages Posted: 11 Dec 2013

See all articles by Itay P Fainmesser

Itay P Fainmesser

Johns Hopkins University - Carey Business School

Andrea Galeotti

University of Essex

Date Written: December 2, 2013

Abstract

The business model of companies such as Facebook, MySpace, and Twitter, relies on monetizing the information on the interactions and influences of their users. How valuable is such information, and is its use beneficial or detrimental for consumer welfare? We study these questions in a model where a monopoly sells a network good and may price discriminate using network information: information on consumers influences and/or on consumers susceptibilities to influence. Our framework incorporates a rich set of market products, including goods characterized by global and local network effects. We derive results on the value of network information and determine under which conditions, relative to uniform price, consumer surplus increases. We demonstrate the applicability of our framework using survey data on various types of relationships.

Suggested Citation

Fainmesser, Itay Perah and Galeotti, Andrea, The Value of Network Information (December 2, 2013). Available at SSRN: https://ssrn.com/abstract=2366077 or http://dx.doi.org/10.2139/ssrn.2366077

Itay Perah Fainmesser (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://https://sites.google.com/site/itaypfainmesser/home

Andrea Galeotti

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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