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Competing for Customers in a Social Network (R)

Author

Listed:
  • Pradeep Dubey

    (Department of Economics, Stony Brook University)

  • Rahul Garg

    (Opera Solutions, INDIA)

  • Bernard De Meyer

    (PSE-Univesite Paris 1, Paris, FRANCE)

Abstract
Customers' proclivities to buy products often depend heavily on who else is buying the same product. This gives rise to non-cooperative games in which firms sell to customers located in a ``social network''. Nash Equilibrium (NE) in pure strategies exist in general. In the quasi-linear case, NE are unique. If there are no a priori biases between customers and firms, there is a cut-off level above which high cost firms are blockaded at an NE, while the rest compete uniformly throughout the network. Otherwise firms could end up as regional monopolies. The connectivity of a customer is related to the money firms spend on him. This becomes particularly transparent when externalities are dominant: NE can be characterized in terms of the invariant measures on the recurrent classes of the Markov chain underlying the social network. When cost functions of firms are convex, instead of just linear, NE need no longer be unique as we show via an example. But uniqueness is restored if there is enough competition between firms or if their valuations of clients are anonymous. Finally we develop a general model of nonlinear externalities and show that existence of NE remains intact.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Pradeep Dubey & Rahul Garg & Bernard De Meyer, 2013. "Competing for Customers in a Social Network (R)," Department of Economics Working Papers 13-01, Stony Brook University, Department of Economics.
    • Handle: RePEc:nys:sunysb:13-01
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    References listed on IDEAS

    as
    1. Pradeep Dubey & Rahul Garg & Bernard De Meyer, 2006. "Competing for Customers in a Social Network," Cowles Foundation Discussion Papers 1591, Cowles Foundation for Research in Economics, Yale University.
    2. Pekka S��skilahti, 2015. "Monopoly Pricing of Social Goods," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 22(3), pages 429-448, November.
    3. Bernard de Meyer & Pradeep K. Dubey & Rahul Garg, 2006. "Competing for Customers in a Social Network: The Quasi-linear Case," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00367866, HAL.
    4. Bloch, Francis & Quérou, Nicolas, 2013. "Pricing in social networks," Games and Economic Behavior, Elsevier, vol. 80(C), pages 243-261.
    5. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001.
    6. Banerji, A. & Dutta, Bhaskar, 2009. "Local network externalities and market segmentation," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 605-614, September.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Tabasso, Nicole, 2019. "Diffusion of multiple information: On information resilience and the power of segregation," Games and Economic Behavior, Elsevier, vol. 118(C), pages 219-240.
    2. Aiche, A. & Einy, Ezra & Haimanko, Ori & Selay, A. & Shitovitz, Benyamin, 2016. "Information advantage in common-value classic Tullock contests," UC3M Working papers. Economics 23939, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Nicole Tabasso, 2014. "Diffusion of Multiple Information," School of Economics Discussion Papers 0914, School of Economics, University of Surrey.
    4. Rusinowska, Agnieszka & Taalaibekova, Akylai, 2019. "Opinion formation and targeting when persuaders have extreme and centrist opinions," Journal of Mathematical Economics, Elsevier, vol. 84(C), pages 9-27.
    5. Mandel, Antoine & Venel, Xavier, 2020. "Dynamic competition over social networks," European Journal of Operational Research, Elsevier, vol. 280(2), pages 597-608.
    6. Antoine Mandel & Xavier Venel, 2017. "Dynamic competition over social networks Dynamic competition over social networks," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01524453, HAL.
    7. Kolumbus, Yoav & Solomon, Sorin, 2021. "On the influence maximization problem and the percolation phase transition," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 573(C).
    8. Li, WenYao & Xue, Xiaoyu & Pan, Liming & Lin, Tao & Wang, Wei, 2022. "Competing spreading dynamics in simplicial complex," Applied Mathematics and Computation, Elsevier, vol. 412(C).
    9. Pradeep Dubey & Rahul Garg & Bernard De Meyer, 2006. "Competing for Customers in a Social Network," Department of Economics Working Papers 06-01, Stony Brook University, Department of Economics.
    10. Jie Gu & Yunjie Xu, 2022. "Battle of positioning: exploring the role of bridges in competitive diffusion," Journal of Computational Social Science, Springer, vol. 5(1), pages 319-350, May.
    11. Demange, Gabrielle, 2017. "Optimal targeting strategies in a network under complementarities," Games and Economic Behavior, Elsevier, vol. 105(C), pages 84-103.
    12. Michel Grabisch & Antoine Mandel & Agnieszka Rusinowska & Emily Tanimura, 2018. "Strategic Influence in Social Networks," Mathematics of Operations Research, INFORMS, vol. 43(1), pages 29-50, February.
    13. Sengupta, Abhijit & Greetham, Danica Vukadinovic, 2010. "Dynamics of brand competition: Effects of unobserved social networks," Journal of Economic Dynamics and Control, Elsevier, vol. 34(12), pages 2391-2406, December.
    14. Goyal, Sanjeev & Heidari, Hoda & Kearns, Michael, 2019. "Competitive contagion in networks," Games and Economic Behavior, Elsevier, vol. 113(C), pages 58-79.
    15. Antoine Mandel & Xavier Venel, 2017. "Dynamic competition over social networks Dynamic competition over social networks," Post-Print halshs-01524453, HAL.
    16. Akylai Taalaibekova, 2018. "Opinion formation in social networks," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 28(2), pages 85-108.

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    More about this item

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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