Abstract
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.
Original language | English |
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Pages (from-to) | 2466-2498 |
Number of pages | 33 |
Journal | American Economic Review |
Volume | 103 |
Issue number | 6 |
DOIs | |
Publication status | Published - Oct 2013 |
Externally published | Yes |