on the simple economics of advertising marketing and product design we propose a framework for analyzing transformations of demand such transformations frequently stem from changes in the dispersion of consumers valuations which lead to rotations of the demand curve in many settings profits are a u shaped function of dispersion high dispersion is complemented by niche production and low dispersion is complemented by mass market supply we investigate numerous applications including product design advertising marketing and sales advice and the construction of quality differentiated product lines we also suggest a new taxonomy of advertising distinguishing between hype which shifts demand and real information which rotates demand

influencing the influencers a theory of strategic diffusion the growth of the internet and assorted technologies has made it possible to collect and process detailed information on social networks this article investigates how firms and governments can harness the power of social networks to promote their goals we show that the optimal use of social networks leads to higher sales and greater profits however an increase in the level and dispersion of social interaction can increase or decrease the optimal influence strategy and profits of the player depending on the content of the interaction optimal influence strategies will target individuals with low or high connections depending on the content of interaction finally the returns to investing in market research on social networks are greater in more unequal networks

airport congestion when carriers have market power this paper analyzes airport congestion when carriers are nonatomistic showing how the results of the road pricing literature are modified when the economic agents causing congestion have market power the analysis shows that when an airport is dominated by a monopolist congestion is fully internalized yielding no role for congestion pricing under monopoly conditions under a cournot oligopoly however carriers are shown to internalize only the congestion they impose on themselves a toll that captures the uninternalized portion of congestion may then improve the allocation of traffic the analysis is supported by some rudimentary empirical evidence

word of mouth communication and percolation in social networks this paper develops a model of demand pricing and advertising in the presence of social learning via word of mouth communication between friends in the model consumers must receive information about a monopolist s product in order to consider purchasing it the presence of word of mouth is not sufficient for demand to be more elastic and prices to be lower compared to an informed population i derive the comparative static results of connectivity mean preserving spread of friendships and clustering of friends on prices the optimal targets for advertising are not generically the individuals with the most friends jel l12 l14 a fundamental issue for economists is understanding the process by which demand is formed through social learning by consumers this article develops a framework based on random graphs for understanding the ways social learning via

optimal pricing in networks with externalities we study the optimal pricing strategies of a monopolist selling a divisible good service to consumers who are embedded in a social network a key feature of our model is that consumers experience a positive local network effect in particular each consumer s usage level depends directly on the usage of her neighbors in the social network structure thus the monopolist s optimal pricing strategy may involve offering discounts to certain agents who have a central position in the underlying network our results can be summarized as follows first we consider a setting where the monopolist can offer individualized prices and derive a characterization of the optimal price for each consumer as a function of her network position in particular we show that it is optimal for the monopolist to charge each agent a price that consists of three components i a nominal term that is independent of the network structure ii a discount term proportional to the influence that this agent exerts over the rest of the social network quantified by the agent s bonacich centrality and iii a markup term proportional to the influence that the network exerts on the agent in the second part of the paper we discuss the optimal strategy of a monopolist who can only choose a single uniform price for the good and derive an algorithm polynomial in the number of agents to compute such a price third we assume that the monopolist can offer the good in two prices full and discounted and we study the problem of determining which set of consumers should be given the discount we show that the problem is np hard however we provide an explicit characterization of the set of agents who should be offered the discounted price next we describe an approximation algorithm for finding the optimal set of agents we show that if the profit is nonnegative under any feasible price allocation the algorithm guarantees at least 88 of the optimal profit finally we highlight the value of network information by comparing the profits of a monopolist who does not take into account the network effects when choosing her pricing policy to those of a monopolist who uses this information optimally

micro targeting and polarization abstract this paper connects the rise in polarization to changes in media technology which allow for higher precision in the advertising strategy of candidates candidates place ads in media outlets whose audiences differ in ideology and size we develop the concept of media centrality which takes into account differences in the media network and in ideology media centrality leads to a simple characterization of both the optimal targeting strategy and policy we show that generally a more fragmented media landscape leads to an increase in polarization

information use and acquisition in price setting oligopolies asymmetric price setting multi product suppliers have access to multiple sources of information about demand conditions where the publicity of each source corresponds to the cross industry correlation of signals received from it a signal s influence on suppliers prices is increasing in its publicity as well as in its precision the emphasis on relatively public information is stronger for smaller suppliers who control narrower product portfolios when information is endogenously acquired suppliers listen to only a subset of information sources this subset is smaller when products are less differentiated and when the industry is less concentrated smaller suppliers focus attention on fewer information sources the inefficiencies arising from information acquisition and use are identified the associated externalities depend upon the extent of product differentiation the concentration of the industry and the degree of decreasing returns to scale

global production planning under exchange rate uncertainty motivated by an aggregate production planning problem in an actual global manufacturing network we examine the impact of exchange rate uncertainty on the choice of optimal production policies when the allocation decision can be deferred until the realization of exchange rates this leads to the formulation of the problem as a two stage recourse program whose optimal policy structure features two forms of flexibility denoted as operational hedging 1 production hedging where the firm deliberately produces less than the total demand and 2 allocation hedging where due to unfavorable exchange rates some markets are not served despite having unused production our characterization of the optimal policy structure leads to an economic valuation of production and allocation hedging we show that the prevalence of production hedging is moderated by the degree of correlation between exchange rates a comprehensive examination under the following four generalized settings provides the depth scope and relevancy that our proposed operational hedges play to facilitate aggregate planning 1 multiple periods 2 demand uncertainty 3 price setting or monopolistic pricing and 4 price setting under demand uncertainty we show that production and allocation hedging are robust for these generalizations and should be integrated into the overall aggregate planning strategy of a global manufacturing firm

who matters in coordination problems we consider a common investment project that is vulnerable to a self fullling coordination failure and hence is strategically risky based on their private information agents who have heterogeneous investment incentives form expectations or sentiments about the project s outcome we nd that the sum of these sentiments is constant across dierent strategy proles and it is independent of the distribution of incentives as a result we can think of sentiment as a scarce resource divided up among the dierent payo types applying this nding we show that agents who benet little from the project s success have a large impact on the coordination process the agents with small benets invest only if their sentiment towards the project is large per unit investment cost as the average sentiment is constant a subsidy decreasing the investment costs of these agents will free up a large amount of sentiment provoking a large impact on the whole economy intuitively these agents insensitive to the project s outcome and hence to the actions of others are inuential because they modify their

monopoly pricing and diffusion of social network goods abstract i present a model of dynamic pricing and diffusion of a network good sold by a monopolist in the model the network good is a subscription social network good this means that in each period each consumer has to pay a subscription price to use the good and the utility derived from subscribing to the good increases as more of her neighboring consumers subscribe consumers myopically optimize their subscription decisions and the monopolist chooses a sequence of subscription prices that maximizes his discounted sum of per period profits three main results emerge first i characterize a unique steady state of the monopoly market second i find that optimal sequences of subscription prices oscillate around the subscription price at the steady state third i analyze how changes in the monopolist s discount factor and the density of the social network affect the subscription price subscription rate and deadweight loss at the steady state

congestible facility rivalry in vertical structures abstract this paper investigates rivalry between congestible facilities and its effects on facility charges capacities and congestion delays by incorporating the downstream carriers into the analysis we find that i the duopoly facilities have lower prices than the monopolist but they offer lower service quality only if capacity decisions are made prior to facility price decisions when the capacity and price decisions are made simultaneously the duopolists will provide the same service quality as the monopolist ii conditional on facility charges the monopolist will have the same capacity investment rules as the central planner if and only if the downstream carrier markets are perfectly competitive at both facilities if there is one carrier market that is imperfectly competitive the monopoly capacity rules will be different from the socially optimal capacity rules iii the monopolist will offer the same service quality at a facility as the central planner if the carrier market is perfectly competitive otherwise the monopolist offers a higher service level than the central planner we also find that for given capacities a the duopolists equilibrium prices increase with the time costs of either consumers or carriers b entrance of a new carrier to any of the facilities depresses the prices charged by both facilities and c lower marginal cost of the carriers at one facility induces a higher price at that facility but a lower price at the other facility

full implementation and belief restrictions we introduce a framework to study the problem of full implementation under general restrictions on agents beliefs which we call implementation first we provide a characterization of the properties of the mechanisms that achieve implementation these conditions relate the possibility of achieving full implementation to the strength of the strategic externalities induced by the mechanism we then study how to achieve full implementation via the design of simple transfer schemes in these context the general conditions for implementation suggest a simple design principle in which belief restrictions are used to weaken the strategic externalities induced by the baseline transfers of the belief free benchmark importantly our results require minimal information on agents beliefs which regard simple moments of the distribution of types these moment conditions arise naturally in applications and in practical problems of mechanism design

communication networks externalities and the price of information information goods or information for short play an essential role in modern economies we consider a trading framework where information has some idiosyncratic value for each consumer exerts externalities and can be freely replicated and transmitted through links in a communication network prices paid for information are determined via the asymmetric nash bargaining solution with endogenous disagreement points this decentralized approach leads to unique prices and payoffs in any exogenous network we use these payoffs to find connection structures that emerge under different externality regimes in pre trade network formation stage an application to citation graphs results in eigenvector like measures of intellectual influence

mail versus mall a strategic analysis of competition between direct marketers and conventional retailers consumers now purchase several offerings from direct sellers including catalog and internet marketers these direct channels exist in parallel with the conventional retail stores the availability of multiple channels has significant implications for the performance of consumer markets the literature in marketing and economics has however been dominated by a focus on the conventional retail sector this paper is an effort toward modeling competition in the multiple channel environment from a strategic viewpoint at the outset a parsimonious model that accommodates the following consumer and market characteristics is introduced first the relative attractiveness of retail shopping varies across consumers second the fit with the direct channel varies across product categories third the strength of existing retail presence in local markets moderates competition fourth in contrast with the fixed location of the retail store that anchors its localized market power the location of the direct marketer is irrelevant to the competitive outcome the model is first applied in a setting where consumers have complete knowledge of product availability and prices in all channels in the resulting equilibrium the direct marketer acts as a competitive wedge between retail stores the direct presence is so strong that each retailer competes against the remotely located direct marketer rather than against neighboring retailers this outcome has implications for the marketing mix of retailers which has traditionally been tuned to attract consumers choosing between retail stores in the context of market entry conditions under which a direct channel can access a local market in retail entry equilibrium are derived our analysis suggests that the traditional focus on retail entry equilibria may not yield informative or relevant findings when direct channels are a strong presence next the role of information in multiple channel markets is modeled this issue is particularly relevant in the context of direct marketing where the seller can typically control the level of information in the marketplace sometimes on a customer by customer basis e g by deciding on the mailing list for a catalog campaign when a certain fraction of consumers does not receive information from the direct marketer the retailers compete with each other for that fraction of the market the retailer s marketing mix has to be tuned in this case to jointly address direct and neighboring retail competition the level of information disseminated by the direct marketer is shown to have strategic implications and the use of market coverage as a lever to control competition is described even with zero information costs providing information to all consumers may not be optimal under some circumstances in particular when the product is not well adapted to the direct channel the level of market information about the direct option should ideally be lowered the only way to compete with retailers on a larger scale with a poorly adapted product is by lowering direct prices which lowers profits lowering market information levels and allowing retailers to compete more with each other facilitates a higher equilibrium retail price in turn this allows a higher direct price to be charged and improves overall direct profit on the other hand when the product is well adapted increasing direct market presence and engaging in greater competition with the retail sector yields higher returns the finding that high market coverage may depress profits raises some issues for further exploration first implementing the optimal coverage is straightforward when the seller controls the information mechanism as in the case of catalog marketing the internet in contrast is an efficient mechanism to transmit information but does not provide the sellers with such control over the level of market information a key reason is that the initiative to gather information on the internet lies largely with consumers the design and implementation of mechanisms to control aggregate information levels in electronic markets can therefore be an important theme for research and managerial interest second direct marketers have traditionally relied on the statistical analysis of customer records to decide on contact policies the analysis in this paper reveals that these policies can have significant strategic implications as well research that integrates the statistical and strategic aspects could make a valuable contribution the paper concludes with a discussion of issues for future research in multiple channel markets including avenues to model competition in settings with multiple direct marketers

do your online friends make you pay a randomized field experiment on peer influence in online social networks demonstrating compelling causal evidence of the existence and strength of peer to peer influence has become the holy grail of modern research in online social networks in these networks it has been consistently demonstrated that user characteristics and behavior tend to cluster both in space and in time there are multiple well known rival mechanisms that compete to be the explanation for this observed clustering these range from peer influence to homophily to other unobservable external stimuli these multiple mechanisms lead to similar observational data yet have vastly different policy implications in this paper we present a novel randomized experiment that tests the existence of causal peer influence in the general population one that did not involve subject recruitment for experimentation of a particular large scale online social network we utilize a unique social feature to exogenously induce adoption of a paid service among a group of randomly selected users and in the process develop a clean exogenous randomization of treatment and control groups a variety of nonparametric semiparametric and parametric approaches ranging from resampling based inference to ego level random effects to logistic regression to survival models yield close to identical statistically and economically significant estimates of peer influence in the general population of a freemium social network our estimates show that peer influence causes more than a 60 increase in odds of buying the service due to the influence coming from an adopting friend in addition we find that users with a smaller number of friends experience stronger relative increase in the adoption likelihood due to influence from their peers as compared to the users with a larger number of friends our nonparametric resampling procedure based estimates are helpful in situations of networked data that violate independence assumptions we establish that peer influence is a powerful force in getting users from free to premium levels a known challenge in freemium communities this paper was accepted by sandra slaughter information systems

pricing in social networks we analyze the problem of optimal monopoly pricing in social networks where agents care about consumption or prices of their neighbors we characterize the relation between optimal prices and consumers centrality in the social network this relation depends on the market structure monopoly vs oligopoly and on the type of externalities consumption versus price we identify two situations where the monopolist does not discriminate across nodes in the network linear monopoly with consumption externalities and local monopolies with price externalities we also analyze the robustness of the analysis with respect to changes in demand and the introduction of bargaining between the monopolist and the consumer

bertrand competition under network externalities abstract two firms engage in price competition to attract buyers located on a network the value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good when the size of externalities increases linearly with the number of adoptions we identify the set of pricing strategies that are consistent with an equilibrium in which one of the firms monopolizes the market the set includes marginal cost mc pricing as well as bipartition pricing which offers discounts to some buyers and charges markups to others we show that mc pricing fails to be an equilibrium under non linear externalities in a general network but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity the analysis is applied to platform competition in a two sided market under local and approximately linear externalities

pricing network effects the increase in the information that firms can collect or purchase about network effects across consumers motivates two important questions how does a firm s pricing strategy react to detailed information on network effects are the availability and use of such information beneficial or detrimental to consumer surplus we develop a model in which a monopoly sells a network good and price discriminates based on information about consumers influence and consumers susceptibility to influence the monopoly optimally offers consumers price discounts for their influence and charges price premia for their susceptibility the price premia and the price discounts are simple functions of the pattern of network effects we determine under which conditions relative to uniform price consumer surplus increases and we characterize the value of information on network effects for the monopoly

pricing and referrals in diffusion on networks abstract when a new product or technology is introduced potential consumers can learn its quality by trying it at a risk or by letting others try it and free riding on the information that they generate we propose a dynamic game to study the adoption of technologies of uncertain value when agents are connected by a network and a monopolist seller chooses a profit maximizing policy consumers with low degree few friends have incentives to adopt early while consumers with high degree have incentives to free ride the seller can induce high degree consumers to adopt early by offering referral incentives rewards to early adopters whose friends buy in the second period referral incentives thus lead to a double threshold strategy by which low and high degree agents adopt the product early while middle degree agents wait we show that referral incentives are optimal on certain networks while inter temporal price discrimination is optimal on others

optimal contracting in networks abstract we study optimal contracting between a firm selling a divisible good that exhibits positive externality and a group of agents in a social network the extent of externality that each agent receives from the consumption of neighboring agents is privately held and is unknown to the firm by explicitly characterizing the optimal multilateral contract we demonstrate how inefficiency in an agent s trade propagates through the network and creates unequal and network dependent downward distortion in other agents trades furthermore we describe bilateral contracts non linear pricing schemes and characterize their explicit dependence on the network structure we show that the firm will benefit from uncertainty in an agent s valuation of other agents externality we describe the profit gap between multilateral and bilateral contracts and analyze the consequences of the explicit dependence of the contracts on network structure when the network is balanced in terms of homogeneity of agents influence network structure has no impact on the firm s profit for bilateral contracts on the other hand when the influences are heterogeneous with high dispersion as in core periphery networks the restriction to bilateral contracts can result in profit losses that grow unbounded with the size of networks