Screening Network Information: Optimal Network Interventions under Asymmetric Information
59 Pages Posted: 13 Jan 2025 Last revised: 11 Dec 2024
Date Written: November 25, 2024
Abstract
We propose a screening framework to analyze interventions in product markets with positive network externalities, where agents hold private information about their network degrees. We highlight the distinct roles of susceptibility and influence in screening and characterize optimal intervention policies for a profit-maximizing monopolist or a welfare-maximizing social planner. We derive further insights into agents’ allocations, the principal’s pricing patterns, and the gains of screening over uniform intervention. Specifically, we establish a connection between the pricing pattern and the hazard rate of agent degrees and identify both intensive and extensive gains of screening, with the intensive gain increasing in the dispersion of agent degrees. By addressing discriminatory intervention under asymmetric network information, our analysis provides a more precise measure of the value of network information while accommodating flexible objectives to guide practical interventions.
Keywords: Network effects, Network intervention, Consumption externalities, Private network information, Screening
Suggested Citation: Suggested Citation