Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/43431
Authors: 
Chuhay, Roman
Year of Publication: 
2010
Series/Report no.: 
Nota di lavoro // Fondazione Eni Enrico Mattei: Sustainable development 2010,118
Abstract: 
The paper studies the impact of homophily on the optimal strategies of a monopolist, whose marketing campaign of new product relies on a word of mouth communication. Homophily is a tendency of people to interact more with those who are similar to them. In the model there are two types of consumers embedded into a social network, which differ in friendship preferences and desirable design of product. Consumers can learn about the product directly from an advertisement or from their neighbors. The monopolist chooses the product design and price to influence a pattern of communication among consumers. We find a number of results: (i) for low levels of homophily the product attractive to both types of consumers is preferred to specialized products; (ii) the price elasticity is increasing in homophily; (iii) an increase in the homophily benefits both the monopolist and consumers; and (iv) the product attractive to both types may be optimal even if the monopolist obtains profits only from sales to one type of consumers.
Subjects: 
Networks
Word of mouth
Viral marketing
Homophily
Diffusion
Social networks
Random graphs
Monopoly
Pricing strategy
Product design
Marketing
Advertisement
JEL: 
D21
D42
D60
D83
L11
L12
Document Type: 
Working Paper

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