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Social Network-Based Discriminatory Pricing Strategy

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Abstract

In this paper we study such pricing practices like MCI's Friends and Family Program that employ price discriminations on the basis of callers' social ties. We characterize a consumer's personal communication network by the number of strong and weak ties that the consumer has. We then derive a consumer's demand for communication service from the structure of the consumer's personal communication network. A monopoly firm's social network-based discriminatory pricing strategy consists of a menu of price plans, each plan targeting at one type of social networks. Our paper provides useful guidelines for the design of optimal social network-based discriminatory pricing strategies. We show that a firm may offer price discounts to communications between “friends and family members” in order to extract a larger profit from communications between callers with weak ties.

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Authors and Affiliations

  1. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, ON, M5S 3E6, Canada

    Mengze Shi

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  1. Mengze Shi
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Shi, M. Social Network-Based Discriminatory Pricing Strategy. Marketing Letters 14, 239–256 (2003). https://doi.org/10.1023/B:MARK.0000012470.94220.db

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  • DOI: https://doi.org/10.1023/B:MARK.0000012470.94220.db

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