A model of referrals: Pricing in social networks

Abstract

Awareness among consumers about the product and its features is critical to the success of the product. Sellers often advertise to meet this objective, but advertising usually requires a large expenditure and it is by nature undirected, in that it targets scores of anonymous consumers. Advertising is an impersonal persuasive method that does not capitalize on the heterogeneity of consumers. Notwithstanding its high initial cost, it is by and large regarded as a quick and efficient way of propagating information.