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Externalities Social Value And Word Of Mouth

Author

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  • Pier-Andre Bouchard St-Amant

    (Department of Economics, Queen's University)

Abstract

I examine an environment where advertisers can "seed" word-of-mouth advertising by providing initial information about a product to specific users of a social network. Discussion over a social network generates spillover effects for firms when consumers can use the social network to inform each other about products. When a firm can exploit a social network's structure, it can increase its sales. However, when the network formation process is costly, firms free-ride on such costs at the expense of agents on the network. If agents can form coalitions, I show that they can recoup the value of this externality by charging a toll. When users actively modify the information, generating word-of-mouth advertising about a product provides a "social value." This social value stems from the discussions that agents have about the product, without any intervention. Since this process occurs regardless of the firm's actions, the firm cannot capture such valuation. The opinion leaders, or highly regarded agents on the network, play a key role in the formation of this social value.

Suggested Citation

  • Pier-Andre Bouchard St-Amant, 2013. "Externalities Social Value And Word Of Mouth," Working Paper 1301, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:1301
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1301.pdf
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    References listed on IDEAS

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    Cited by:

    1. Christophe Bravard & Sudipta Sarangi & ANNE NOUWELAND & MARCO SLIKKER, 2016. "The Position Value for Partition Function Form Network Games," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(2), pages 226-247, April.

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    More about this item

    Keywords

    Network; Word of Mouth; Externalities; Social Value;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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