Pricing and information acquisition in networks

Abstract

This paper investigates how a monopolist strategically acquires information from networked consumers with correlated preferences using discriminatory or uniform pricing schemes. Under uniform pricing, the optimal information acquisition problem can be efficiently solved in polynomial time by iteratively selecting consumers with the highest Katz-Bonacich centrality. By contrast, under discriminatory pricing, the problem is generally NP-hard. However, in typical networks, such as complete bipartite, core-periphery, and nested-split networks, the optimal targeted group can be characterized in a straightforward manner: the monopolist simply prioritizes consumers with higher degrees. A comparative analysis shows that the size of the optimal targeted group decreases with information cost but follows an inverted U-shape with respect to preference correlation. Allowing the monopolist to acquire information always reduces welfare under discriminatory pricing, whereas under uniform pricing, the impact is not necessarily negative.