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SUMMARY:Dynamic pricing in social networks: The Word of Mouth effect - Ali
  Jadbabaie Alfred Fitler Moore Professor of Network Science\, University o
 f Pennsylvania
DTSTART:20141008T140000Z
DTEND:20141008T150000Z
UID:TALK55241@talks.cam.ac.uk
CONTACT:Tim Hughes
DESCRIPTION:In this talk\, we study the problem of optimal dynamic pricing
  for a monopolist selling a product to consumers in a social network. The 
 only means of spread of information about the product is via Word of Mouth
  communication\; consumers' knowledge of the product is only through frien
 ds who have already made a purchase. By analyzing the structure of the und
 erlying endogenous process\, we show that the optimal dynamic pricing poli
 cy for durable products drops the price to zero infinitely often\, giving 
 away the immediate profit in full to expand the informed network in order 
 to exploit it in future. We provide evidence for this behavior from smartp
 hone applications\, where price histories indicate frequent free-offerings
  for many apps. Moreover\, we show that despite infinitely often drops of 
 the price to zero\, the optimal price trajectory does not get trapped near
  zero. When externalities are present\, we show that a strong enough netwo
 rk externality can push the price drops to a nonzero level\, but similar p
 rice fluctuations to this new price floor still remain. When the product i
 s nondurable\, we show that the fluctuations disappear after a finite time
 .
LOCATION:Cambridge University Engineering Department\, LR6
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