Consumer Referrals (original) (raw)

2013, SSRN Electronic Journal

In many industries, …rms reward their customers for making referrals. We analyze a monopoly's optimal policy mix of price, advertising intensity, and referral fee when buyers choose to what extent to refer other consumers to the …rm. When the referral fee can be optimally set by the …rm, it will charge the standard monopoly price. The …rm always advertises less when it uses referrals. We extend the analysis to the case where consumers can target their referrals. In particular, we show that referral targeting could be detrimental for consumers in a low-valuation group.