# Pricing and Referrals in Diffusion on Networks

arXiv: https://arxiv.org/abs/1509.06544 · HTML: https://mlsanity.com/paper/1509.06544/

## Key facts

- Cited by 1 papers in the map (data through 14 Oct 2026).
- First posted on arXiv 22 Sep 2015.

## Built on by (most cited first, 1 of 1)

- [Emerging Methods of Auction Design in Social Networks](https://mlsanity.com/paper/2108.00381/) (2021)

## Abstract (arXiv)

When a new product or technology is introduced, potential consumers can learn its quality by trying the product, at a risk, or by letting others try it and free-riding on the information that they generate. We propose a dynamic game to study the adoption of technologies of uncertain value, when agents are connected by a network and a monopolist seller chooses a policy to maximize profits. Consumers with low degree (few friends) have incentives to adopt early, while consumers with high degree have incentives to free ride. The seller can induce high-degree consumers to adopt early by offering referral incentives - rewards to early adopters whose friends buy in the second period. Referral incentives thus lead to a `double-threshold strategy' by which low and high-degree agents adopt the product early while middle-degree agents wait. We show that referral incentives are optimal on certain networks while inter-temporal price discrimination (i.e., a first-period price discount) is optimal on others, and discuss welfare implications.