Market Choices Driven by Reference Groups: A Comparison of Analytical and Simulation Results on Random Networks

Abstract

The present paper reports simulation results for a simple model of reference group influence on market choices, e.g., brand selection. The model was simulated on three types of random graphs, Erdos–Renyi, Barabasi–Albert, and Watts–Strogatz. The estimates of equilibria based on the simulation results were compared to the equilibria of the theoretical model. It was verified that the simulations exhibited the same qualitative behavior as the theoretical model, and for graphs with high connectivity and low clustering, the quantitative predictions offered a viable approximation. These results allowed extending the results from the simple theoretical model to networks. Thus, by increasing the positive response towards the reference group, the third party may create a bistable situation with two equilibria at which respective brands dominate the market. This task is easier for large reference groups.

Keywords

• reference group influence
• random graphs
• simulations