There are many situations in which a customer’s proclivity to buy the product of any firm depends not only on the classical attributes of the products such as its price and quality but also on who else is buying the same product. We model these situations as games in which firms compete for customers located in a “social network”. Nash Equilibrium (NE) in pure strategies exist in general. In the quasi-linear version of the model, NE turn out to be unique and can be precisely characterized. There is a cut-off level above which high cost firms are blockaded at an NE, while the rest compete uniformly throughout the network. We also explore the relation between the connectivity of a customer and the money firms spend on him.
By: Pradeep Dubey, Rahul Garg
Published in: RI05009 in 2005
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