Peer to Peer Advertising through Social Networking Websites

Peer-To-Peer advertising is the newest trend in the age of online advertising. The Facebook gift phenomenon or invention of Application directories in Orkut or rapidly increasing usage of Avatars in Second-Life, all lead to new market dynamics using the latest advertising mode. In this paper we develop a strategic interaction model and explain how the structure of peer-to-peer link formations in social networking websites affect the advertising dynamics in electronic space. The paper examines how the stability and efficiency of advertising networks differ depending upon the network structure. In our simple graph theoretic model the cost components of a network not only include link maintenance cost but also include users' privacy costs which may increase as the length of the diameter of the network increases. In the model the utility of the advertiser does not only depend on the intrinsic value of her peers in the network (as assumed in standard Economics literature) but also on the quality of 'user service' the advertiser provides. The results show how the network structures affect the optimal pricing,advertising and link formation strategies of the players (platforms, advertisers and general users). Additionally, the model also explains why the users of social networking website often experience inter-platform migration