Managing Consumer Referrals on a Chain Network

Abstract We consider a monopoly that sets a price and differentiated referral fees to spread product information along a simple consumer communication network (a chain). The profit-maximizing solution involves standard monopoly pricing and referral fees that provide consumers with strictly positive referral incentives. Effective price discrimination among consumers based on their positions in the chain occurs both in the case of differentiated referral fees and in the case of uniform referral fees.