Managing Consumer Referrals on a Chain Network
Forthcoming in the Review of Network Economics
35 Pages Posted: 19 Nov 2014 Last revised: 20 Nov 2014
Date Written: March 17, 2014
We consider a monopoly that sets a price and differentiated referral fees to spread product information along a simple consumer communication network (a chain). The profit-maximizing solution involves standard monopoly pricing and referral fees that provide consumers with strictly positive referral incentives. Effective price discrimination among consumers based on their positions in the chain occurs both in the case of differentiated referral fees and in the case of uniform referral fees.
Keywords: communication network, consumer referral policy, referral fee, price discrimination
JEL Classification: D4, D8, L1, M31
Suggested Citation: Suggested Citation