Publications
Campbell, Arthur. 2013. "Word-of-Mouth Communication and Percolation in Social Networks." American Economic Review, 103(6): 2466-98. link
Abstract:
This paper develops a model of demand, pricing and advertising in the presence of social learning via word-of-mouth communication between friends. In the model consumers must receive information about a monopolist's product in order to consider purchasing it. The presence of word-of-mouth is not sufficient for demand to be more elastic and prices to be lower compared to an informed population. I derive the comparative static results of connectivity, mean-preserving spread of friendships, and clustering of friends on prices. The optimal targets for advertising are not, generically, the individuals with the most friends.
Campbell, Arthur, Florian Ederer and Johannes Spinnewijn. 2014. "Delay and Deadlines: Freeriding and Information Revelation in Partnerships." American Economic Journal: Microeconomics, 6(2): 163-204. link
Abstract:
We study two sources of delay in teams: freeriding and lack of communication. Partners contribute to the value of a common project, but have private information about the success of their own efforts. When the deadline is far away, unsuccessful partners freeride on each others' efforts. When the deadline draws close, successful partners stop revealing their success to maintain their partners' motivation. We derive comparative statics results for common team performance measures and find that the optimal deadline maximizes productive efforts while avoiding unnecessary delays. Welfare is higher when information is only privately observable rather than revealed to the partnership.
Campbell, Arthur. 2014. "Signaling in Social Network and Social Capital Formation." Economic Theory, 57(2): 303-337. link
Abstract:
This paper presents a model of social capital and social network formation. The key interaction within the model is that whom an individual chooses to become friends with affects the value (social capital) of the friendship. In the model, how a player searches for and then forms friendships reveals how willing she is to engage in cooperation with a potential friend. Individuals observe their local network structure (friends and cliques) and the actions of players within these. Willingness to cooperate is private information and is captured by the discount factor of an individual. Cooperative types have high discount factors and can signal their type by forming a clique through befriending a friend of a friend. Uncooperative types do not form these kinds of friendships because of the local observability of their actions to all members of a clique. Thus, when a player meets someone with whom she shares a friend, her belief that the individual has a high discount factor is greater than the population average. In this sense, people “trust” each other more when they share a friend in common. Finally, I relate the primitives of the model to characteristics of the implied social network by nesting the sequential equilibrium in an algorithm of network formation proposed by Jackson and Rogers (Am Econ Rev 97(3):890–915, 2007). The model highlights a trade-off between maximizing the total amount of social capital in a society and distributing it equitably across individuals.
Campbell, Arthur. 2015. "Word of Mouth Model of Sales." Economic Letters, 133: 45-50. link
Abstract:
In this paper, I develop a model of the dynamic pricing of a monopolist while information about its product is diffusing through word of mouth. Individuals who purchase the product engage in word of mouth with their friends. The main result establishes that prices optimally fluctuate over time. A monopolist sets prices over time to balance extracting profits in the short term with increasing information diffusion through word of mouth and thereby the population of potential consumers in the future. The key state variable for determining this tradeoff is the distribution of valuations of the individuals on the edge of the diffusion. This distribution of valuations is determined by the history of prices and changes over time. Our analysis reveals that prices must move up and down infinitely often.
Campbell, Arthur, Dina Mayzlin and Jiwoong Shin. 2017. "Buzz Management." The RAND Journal of Economics, 48(1): 203-229. link
Abstract:
We model the incentives of individuals to engage in word of mouth (or buzz) about a product, and how a firm may strategically influence this process through its information release and advertising strategies. Individuals receive utility by improving how others perceive them. A firm restricts access to information, advertising may crowd out word of mouth and a credible commitment not to engage in advertising is valuable for a firm. Finally, we find that the ability of the firm to target advertising to well-connected consumers may be detrimental to the signaling value of word of mouth.
Campbell, Arthur, Jonathan Feinstein, Soongwok Hong, Sharon Qian and Trevor Williams. 2017. "Diversity, Knowledge Clusters and Job Placement." Journal of Economic Education, 48(3), 146-166.
Abstract:
The authors present an empirical analysis of what is taught in core micro-economics at a set of top U.S. doctoral economics programs. Their aim is to evaluate the diversity across programs and assess whether there are distinct “schools of thought” in graduate economics education. Their empirical findings reveal substantial, in fact, surprising diversity in what is taught. Application of a clustering algorithm results in programs clustering into two main “schools of thought.” The authors also specify an econometric model of job placement. Their job placement results indicate that candidates are more likely to be hired at schools in the same cluster as their home program, even after controlling for other factors. The results inform debates about graduate education and the relevance of a “common core” curriculum.
Campbell, Arthur. 2019. "Social Learning with Differentiated Products." The RAND Journal of Economics, 50(1): pp226-248. link
Abstract:
Learning from one's friends is a key process by which consumers become informed about available products. This paper embeds social learning in a model of firms producing differentiated products. We consider how the structure of social relationships between consumers influence pricing and welfare. The model is very tractable and allows us to consider how a variety of characteristics of the social network - distribution of friendships, homophily, clustering, and correlations between an individual's preferences and number of friends - influence these outcomes. It also serves to highlight the challenges one faces in using metrics such as consumer awareness and the sensitivity of demand to prices as measures of informational efficiency in markets.
Campbell, Arthur, Matthew Leister, Yves Zenou. 2020. "Word of Mouth Communication and Search." The RAND Journal of Economics, 51(3), 676-712.. link
Abstract:
In many economic contexts, the most credible source of information about the quality of products is one's friends. In this paper, we develop a word-of-mouth model of search for an experience good where the quality is unknown. We find the characteristics of the social network that result in exclusively low quality, a mixture of qualities and exclusively high-quality products. When consumer search is costly, an exclusively high-quality equilibrium is not possible. Moreover, markets may become stuck in a low-quality equilibrium when equilibria with better quality are possible. Market inefficiencies are characterized by an under-investment in friends and a market's misallocation of low-quality firms.
Campbell, Arthur. 2021. "Spending Political Capital." Economic Journal, Accepted. link.
Abstract:
An important task for an organization is establishing truthful communication between parties with differing interests. This task is made particularly challenging when the accuracy of the information is poorly observed or not at all. In these settings, incentive contracts based on the accuracy of information will not be very effective. This paper considers an alternative mechanism that does not require any signal of the accuracy of any information communicated to provide incentives for truthful communication. Rather, an expert sacrifices future participation in decision making to influence the current period's decision in favor of their preferred project. This mechanism captures a notion often described as "political capital" whereby an individual is able to achieve their own preferred decision in the current period at the expense of being able to exert influence in future decisions ("spending political capital"). When the first best is not possible in this setting, I show that experts hold more influence than under the first best and that, in a multi-agent extension, a finite team size is optimal. Together these results suggest that a small number of individuals hold excessive influence in organizations.
Working Papers
Campbell, Arthur, Phillip Uschev and Yves Zenou. 2023. "The Network Origins of Entry" Revise and Resubmit Journal of Political Economy.
We develop a model of the process of entry under social learning via word-of-mouth (WOM). An incumbent's product is known to the consumers, while the success of a potential entrant hinges on generating consumer awareness of the entrant's product through WOM. We model WOM as a percolation process on a random graph. We show that whether an entrant can gain a non-negligible level of awareness depends on the social network structure via two sufficient statistics, which are functions of the first three factorial moments of the degree distribution. We categorize the different pricing equilibria into the classical blockaded, deterred, and accommodated entry taxonomy. Under deterred entry, our model produces a model of limit pricing by an incumbent to prevent an entrant gaining a non-negligible level of awareness. By focusing on multinomial logit demand and on a mixed-Poisson degree distribution, we show that increasing the network density shifts the pricing equilibrium from blockaded to deterred and, finally, to accommodated entry. Using numerical simulations, we also show that the aggregate consumer surplus may be non-monotonic with respect to network density. Finally, if the incumbent has knowledge about the consumer's number of friends and can charge personalized prices, we find that it is optimal for the incumbent to charge lower prices to more-connected consumers.
Campbell, Arthur, Matthew Leister and Yves Zenou. 2023. "Competing Diffusions in a Social Network."
We develop a model of competing diffusions of goods on a social network. There are two types of goods and individuals: mass-market (more prevalent) and niche-market. We find that there is a unique stable steady state and show that the adoption of a mass-market good is greater than its population share. Furthermore, greater connectivity and homophily in the social network will concurrently increase the prevalence of niche-market goods. If there is a strategic agent who wants to promote a niche good, she will invest more in influencing activities than one promoting mass-market goods. When individuals choose their degree of homophily, we show that niche-market individuals exhibit greater homophily than mass-market ones.