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Consumer referrals

Author

Listed:
  • Arbatskaya, Maria
  • Konishi, Hideo

Abstract

In many industries, firms reward their customers for making referrals. We analyze a monopoly’s optimal policy mix of price, advertising intensity, and referral fee when buyers choose to what extent to refer other consumers to the firm. When the referral fee can be optimally set by the firm, it will charge the standard monopoly price. The firm always advertises less when it uses referrals. We extend the analysis to the case where consumers can target their referrals. In particular, we show that referral targeting could be detrimental for consumers in a low-valuation group.

Suggested Citation

  • Arbatskaya, Maria & Konishi, Hideo, 2016. "Consumer referrals," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 34-58.
    • Handle: RePEc:eee:indorg:v:48:y:2016:i:c:p:34-58
    DOI: 10.1016/j.ijindorg.2016.06.001
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    References listed on IDEAS

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    5. Arbatskaya Maria & Konishi Hideo, 2014. "Managing Consumer Referrals on a Chain Network," Review of Network Economics, De Gruyter, vol. 13(1), pages 69-94, March.
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    1. Arbatskaya Maria & Konishi Hideo, 2014. "Managing Consumer Referrals on a Chain Network," Review of Network Economics, De Gruyter, vol. 13(1), pages 69-94, March.

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    More about this item

    Keywords

    Consumer referral policy; Word of mouth; Referral reward program; Targeted advertising; Targeted referrals;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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