  We propose a novel family of sales-based rebate mechanisms that induce
network effects in sales of products that do not exhibit such externalities.
The proposed rebate mechanisms enable the seller of a product with uncertain
quality to adjust the magnitude and sign of externalities in consumers' payoffs
by conditioning the amount of the rebate on the sales volume. Using the
machinery of global games and variational optimization techniques, we analyze
the revenue implications of such induced externalities in the form of rebates.
We identify optimal profitable designs while unraveling the main drivers of
profit and further elucidate the main practical barriers associated with their
implementation and show how these difficulties can be handled. The key insight
of our rebate design is monetizing the strategic uncertainty in consumers'
beliefs on others' valuations. The common externality induced in consumers'
utilities as a sales-based rebate essentially enables the seller to elicit
different prices at different valuations, given the heterogeneity of the
beliefs on sales volume and hence on the rebate. Our analysis indicates that a
mechanism that creates positive externalities will in fact reduce the profit
because it lowers the expected prices at high valuations. On the other hand,
sellers can use a sales-based rebate mechanism that is decreasing with sales
volume to incentivize purchases at lower valuations by providing higher
expected rebates. Our work contributes to the literature on technology-enabled
features of digitized markets and demonstrates that real-time
sales/subscription data can lead to new revenue management methods.
