Abstract

https://ssrn.com/abstract=2697143
 


 



Do Online Social Networks Increase Welfare?


Manuel Mueller-Frank


University of Navarra, IESE Business School

Mallesh M Pai


University of Pennsylvania

November 2, 2014

IESE Business School Working Paper No. WP-1118-E

Abstract:     
We consider a strategic online social network that controls information flows between agents in a social learning setting. Agents on the network select among products of competing firms of unknown quality. The network sells advertising to firms. We consider display advertising, which is standard firm-to-consumer advertising, and social advertising, in which agents who purchased that firm's product are highlighted to their friends. We show that in equilibrium, information is unbiased relative to a setting with no advertising. However, the network reduces the information agents see about others' purchases, since this increases advertising revenue. Hence consumer welfare is lower than in the first-best.

Number of Pages in PDF File: 36

Keywords: social networks; advertising; search


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Date posted: December 7, 2015  

Suggested Citation

Mueller-Frank, Manuel and Pai, Mallesh M, Do Online Social Networks Increase Welfare? (November 2, 2014). IESE Business School Working Paper No. WP-1118-E. Available at SSRN: https://ssrn.com/abstract=2697143

Contact Information

Manuel Mueller-Frank (Contact Author)
University of Navarra, IESE Business School ( email )
Avenida Pearson 21
Barcelona, 08034
Spain
Mallesh M Pai
University of Pennsylvania
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