  In this paper, we study a strategic model of marketing and product
consumption in social networks. We consider two firms in a market competing to
maximize the consumption of their products. Firms have a limited budget which
can be either invested on the quality of the product or spent on initial
seeding in the network in order to better facilitate spread of the product.
After the decision of firms, agents choose their consumptions following a
myopic best response dynamics which results in a local, linear update for their
consumption decision. We characterize the unique Nash equilibrium of the game
between firms and study the effect of the budgets as well as the network
structure on the optimal allocation. We show that at the equilibrium, firms
invest more budget on quality when their budgets are close to each other.
However, as the gap between budgets widens, competition in qualities becomes
less effective and firms spend more of their budget on seeding. We also show
that given equal budget of firms, if seeding budget is nonzero for a balanced
graph, it will also be nonzero for any other graph, and if seeding budget is
zero for a star graph it will be zero for any other graph as well. As a
practical extension, we then consider a case where products have some preset
qualities that can be only improved marginally. At some point in time, firms
learn about the network structure and decide to utilize a limited budget to
mount their market share by either improving the quality or new seeding some
agents to incline consumers towards their products. We show that the optimal
budget allocation in this case simplifies to a threshold strategy.
Interestingly, we derive similar results to that of the original problem, in
which preset qualities simulate the role that budgets had in the original
setup.
