American Economic Review Vol. 103 No. 6 2013
Word-of-Mouth Communication and Percolation in Social Networks
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.
- DOI
- 10.1257/aer.103.6.2466
- Volume
- 103
- Issue
- 6
- Pages
- 2466-2498
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref