Departmental Papers (ESE)

Abstract

In this paper we propose and study a strategic model of marketing and product adoption in social networks. Two firms compete for the spread of their products in a social network. Considering their fixed budgets, they initially determine the payoff of their products and the number of their initial seeds in a network. Afterwards, neighboring agents play a local coordination game over a fixed network which determines the dynamics of the spreading. Assuming myopic best response dynamics, agents choose a product based on the payoff received by actions of their neighbors. This local update dynamics results in a game-theoretic diffusion process in the network. Utilizing earlier results in the literature, we find a lower and an upper bound on the proportion of product adoptions. We derive an explicit characterization of these bounds based on the payoff of products offered by firms, the initial number of adoptions and the underlying structure of the network. We then consider a case in which after switching to the new product, agents might later switch back to the old product with some fixed rate. We show that depending on the rate of switching back to the old product, the new product might always die out in the network eventually. Finally, we consider a game between two firms aiming to optimize their products adoptions while considering their fixed budgets. We describe the Nash equilibrium of this game and show how the optimal payoffs offered by firms and the initial number of seeds depend on the relative budgets of firms.

Document Type

Conference Paper

Subject Area

GRASP

Date of this Version

12-2012

Comments

Fazeli, A. & Jadbabaie, A. (2012). Duopoly Pricing Game in Networks With Local Coordination Effects. Proceedings of the 51st IEEE Conference on Decision and Control, Maui, Hawaii, pp. 74-79.

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Keywords

Game Theory, Social Networks, Viral Marketing, Stochastic Process, Optimization

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Date Posted: 23 January 2013

This document has been peer reviewed.