IDEAS home Printed from https://ideas.repec.org/p/boc/bocoec/851.html
   My bibliography  Save this paper

Consumer Referrals

Author

Listed:
  • Maria Arbatskaya

    (Emory University)

  • Hideo Konishi

    (Boston College)

Abstract

In many industries, firms reward their customers for making referrals. We analyze the optimal policy mix of price, advertising intensity, and referral fee for monopoly when buyers choose to what extent to refer other consumers to the firm. We find that the firm uses its referral fee, but not its price or advertising level, to manage referrals. When consumers hold correct expectations about the true quality of the product, the firm charges the standard monopoly price. The firm always advertises less when it uses referrals. We extend the analysis to the case where consumer referrals can be targeted.

Suggested Citation

  • Maria Arbatskaya & Hideo Konishi, 2013. "Consumer Referrals," Boston College Working Papers in Economics 851, Boston College Department of Economics, revised 01 Nov 2016.
    • Handle: RePEc:boc:bocoec:851
    as

    Download full text from publisher

    File URL: http://fmwww.bc.edu/EC-P/wp851.pdf
    File Function: main text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eyal Biyalogorsky & Eitan Gerstner & Barak Libai, 2001. "Customer Referral Management: Optimal Reward Programs," Marketing Science, INFORMS, vol. 20(1), pages 82-95, August.
    2. Andrea Galeotti & Sanjeev Goyal, 2009. "Influencing the influencers: a theory of strategic diffusion," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 509-532, September.
    3. Timothy Van Zandt, 2004. "Information Overload in a Network of Targeted Communication," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 542-560, Autumn.
    4. Jun, Tackseung & Kim, Jeong-Yoo, 2008. "A theory of consumer referral," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 662-678, May.
    5. Justin P. Johnson, 2013. "Targeted advertising and advertising avoidance," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 128-144, March.
    6. Galeotti, Andrea & Moraga-González, José Luis, 2008. "Segmentation, advertising and prices," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1106-1119, September.
    7. Simon P. Anderson & André De Palma, 2009. "Information congestion," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 688-709, December.
    8. Lola Esteban & Agustín Gil & Jose M. Hernández, 2001. "Informative Advertising and Optimal Targeting in a Monopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 161-180, June.
    9. Dina Mayzlin, 2006. "Promotional Chat on the Internet," Marketing Science, INFORMS, vol. 25(2), pages 155-163, 03-04.
    10. 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.
    11. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 465-491.
    12. repec:bla:jindec:v:49:y:2001:i:2:p:161-80 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jesús Andrés Burbano-Gómez & Mónica María Sinisterra-Rodríguez, 2023. "Effects of informative advertising on the formation of market structures," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(2), pages 445-486, June.
    2. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    3. Siemering, Christian, 2023. "A model of endogenous targeting in duopoly," Information Economics and Policy, Elsevier, vol. 64(C).
    4. Simon P. Anderson & André de Palma, 2012. "Competition for attention in the Information (overload) Age," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 1-25, March.
    5. Alexandre de Corniere, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    6. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2018. "Deceptive Advertising with Rational Buyers," Management Science, INFORMS, vol. 64(3), pages 1291-1310, March.
    7. Esteban, Lola & Hernández, José M., 2017. "Direct advertising and opt-in provisions: Policy and market implications," Information Economics and Policy, Elsevier, vol. 39(C), pages 15-25.
    8. Simon Anderson & Alicia Baik & Nathan Larson, 2023. "Price Discrimination in the Information Age: Prices, Poaching, and Privacy with Personalized Targeted Discounts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(5), pages 2085-2115.
    9. Florian Hoffmann & Roman Inderst & Marco Ottaviani, 2013. "Hypertargeting, Limited Attention, and Privacy: Implications for Marketing and Campaigning," Working Papers 479, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    10. Florian Hoffmann & Roman Inderst & Marco Ottaviani, 2020. "Persuasion Through Selective Disclosure: Implications for Marketing, Campaigning, and Privacy Regulation," Management Science, INFORMS, vol. 66(11), pages 4958-4979, November.
    11. Saur, Marc P. & Schlatterer, Markus G. & Schmitt, Stefanie Y., 2022. "Limited perception and price discrimination in a model of horizontal product differentiation," Games and Economic Behavior, Elsevier, vol. 134(C), pages 151-168.
    12. Yuichiro Kamada & Aniko Öry, 2020. "Contracting with Word-of-Mouth Management," Management Science, INFORMS, vol. 66(11), pages 5094-5107, November.
    13. Chen, Yongmin & Hua, Xinyu & Maskus, Keith E., 2021. "International protection of consumer data," Journal of International Economics, Elsevier, vol. 132(C).
    14. Li, Changying & Li, Youping & Zhang, Jianhu, 2023. "Targeted advertising with R&D rivalry," Mathematical Social Sciences, Elsevier, vol. 124(C), pages 24-34.
    15. Zhao Jiang & Wu Dan & Liu Jie, 2020. "Distinct role of targeting precision of Internet-based targeted advertising in duopolistic e-business firms’ heterogeneous consumers market," Electronic Commerce Research, Springer, vol. 20(2), pages 453-474, June.
    16. Alexandre de Cornière, 2016. "Search Advertising," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 156-188, August.
    17. Simon P. Anderson & Martin Peitz, 2023. "Ad Clutter, Time Use, and Media Diversity," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 227-270, May.
    18. Lola Esteban & José Hernández, 2014. "Endogenous direct advertising and price competition," Journal of Economics, Springer, vol. 112(3), pages 225-251, July.
    19. B. Curtis Eaton & Ian A. MacDonald & Laura Meriluoto, 2013. "Filtering and email pricing as solutions to spam," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(3), pages 881-899, August.
    20. Il-Horn Hann & Kai-Lung Hui & Sang-Yong T. Lee & Ivan P. L. Png, 2008. "Consumer Privacy and Marketing Avoidance: A Static Model," Management Science, INFORMS, vol. 54(6), pages 1094-1103, June.

    More about this item

    Keywords

    consumer referral policy; word of mouth; referral reward program; targeted advertising; product awareness;
    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boc:bocoec:851. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F Baum (email available below). General contact details of provider: https://edirc.repec.org/data/debocus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.