YINS Distinguished Lecture, 1/14/15: “Dynamic Pricing in Social Networks: The Word of Mouth Effect”

YINS Distinguished Lecture, 1/14/15: “Dynamic Pricing in Social Networks: The Word of Mouth Effect”

Talk Summary: 

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 friends who have already made a purchase. By analyzing the structure of the underlying endogenous process, we show that the optimal dynamic pricing policy 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 some evidence for this behavior from smartphone 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 network externality can push the price drops to a nonzero level.

Speaker: 
Ali Jadbabaie
Alfred Fitler Moore Professor of Network Science Department of Electrical & Systems Engineering University of Pennsylvania
Bio: 

Ali Jadbabaie is the Interim Director of the Sociotechnical Systems Research Center at MIT, and the Associate Director of a new  MIT-wide entity on data and systems whose mission is to bring together research and graduate education in information and decision systems, complex social and technological systems, and statistics. He is currently on leave of absence from University of Pennsylvania where he is the Alfred Fitler Moore Professor of Network Science in the department of electrical and systems engineering with secondary appointments in departments of Computer and Information Science and Operations and Information Management in the Wharton School. A faculty member in Penn’s General Robotics, Automation, Sensing & Perception (GRASP) Lab, Prof. Jadbabaie is also the co-founder and former director of the Raj and Neera Singh Program in Networked & Social Systems Engineering (NETS) at Penn Engineering. NETS is a new undergraduate interdisciplinary degree program focused on network science and engineering, operations research, computer science, and social sciences. He is also a faculty member of The Warren Center for Network & Data Sciences at Penn and a faculty affiliate of the Center for Technology, Innovation and Competition at Penn Law. He is the inaugural editor-in-chief of IEEE Transactions on Network Science and Engineering, a new (2014) interdisciplinary journal sponsored by several IEEE Societies. Dr. Jadbabaie is a recipient of an NSF Career Award, an ONR Young Investigator Award, the O. Hugo Schuck Best Paper Award from the American Automatic Control Council, and the George S. Axelby Best Paper Award of the IEEE Control Systems Society. He is an IEEE Fellow. His current research interests include the interplay of dynamic systems and networks with specific emphasis on multiagent coordination and control, distributed optimization, network science, and network economics. He received his B.S. from Sharif University of Technology in Tehran, his M.S. in electrical and computer engineering from the University of New Mexico, and his Ph.D. in control and dynamical systems from the California Institute of Technology (Caltech). He was a postdoctoral scholar at Yale for a year before joining the faculty at university of Pennsylvania (Penn) in July 2002.