A recent article explores a network that we analyzed in a homework problem. The article, titled A Note on Expanding Networks and Monopoly Pricing by Jean J. Gabszewicz and Filomena Garcia, explores the pricing issues related with a fledgling monopoly market. The article can be found at the following address:

http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V84-4P4FSH8-1&_user=492137&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000022719&_version=1&_urlVersion=0&_userid=492137&md5=a968e3eed154ffda74bd8a67aa2ba15a

As discussed in Chapter 8 of the Networks textbook, the model of edges and nodes can be used to set-up consumer relationship graphs between sellers and buyers. In this article, the consumer nodes are unaware of the new product that the seller nodes are trying to disperse. At first, in order to get their good into more consumer’s hands, the authors argue that the goods should be sold for a zero value. This idea shows the importance of the intertwining of social and economic networks. In this case, in order for the monopoly’s economic network to flourish, it must first integrate itself into a solid social network. One of the key points in the class readings, The Tipping Point, was that word of mouth is one of the most powerful advertising tools there is. Thus, in order to maximize the likelihood of this phenomenon, it would appear to be the most beneficial to get one’s good out into the right hands through any way possible. The authors make an excellent point that by giving the good a zero price, the monopoly is effectively eliminating barriers between the consumer and the good and is building a larger consumer foundation. Once the good starts to become valuable to people, then it is possible to increase the price. If a solid customer foundation has been laid than increasing the price will allow for the monopoly to garner profit since there is now a demand for the good.
At first, besides the initial zero price, the sellers must successfully integrate themselves into the market, which may entail out competing another seller. This is done most effectively through cascades. If one consumer switches over to the new product then there is more pressure on his friends to switch over as well. If enough of the friends switch then gradually their friends will switch too and the cascade will commence. This is not mentioned in the article, because it mainly focuses on initial product appeal and on the method to get a new product distributed based on pricing schemes, however it is key in explaining the switch from one product to another when they both provide a similar service. The importance of product dispersion and pricing is especially imperative in an emerging monopoly and this article does an excellent job justifying the need for an initial zero price and explaining the benefits from doing so.