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Facilitating Adoption of Internet Technologies and Services with Externalities via Cost Subsidization

Published:18 August 2017Publication History
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Abstract

This article models the temporal adoption dynamics of an abstracted Internet technology or service, where the instantaneous net value of the service perceived by each (current or potential) user/customer incorporates three key features: (i) user service affinity heterogeneity, (ii) a network externality, and (iii) a subscription cost. Internet technologies and services with network externalities face a “chicken-and-egg” adoption problem in that the service requires an established customer base to attract new customers. In this article, we study cost subsidization as a means to “reach the knee,” at which point the externality drives rapid service adoption, and thereby change the equilibrium service fractional adoption level from an initial near-zero level to a final near-one level (full adoption). We present three simple subsidy models and evaluate them under two natural performance metrics: (i) the duration required for the subsidized service to reach a given target adoption level and (ii) the aggregate cost of the subsidy born by the service provide. First, we present a “two-target adoption subsidy” that subsidizes the cost to keep the fraction of users with positive net utility at a (constant) target level until the actual adoption target is reached. Second, we study a special case of the above where the target ensures all users have positive net utility, corresponding to a “quickest adoption” subsidy (QAS). Third, we introduce an approximation of QAS that only requires the service provider adjust the subsidy level a prescribed number of times. Fourth, we study equilibria and their stability under uniformly and normally distributed user service affinities, highlighting the unstable equilibrium in each case as the natural target adoption level for the provider. Finally, we provide a fictional case study to illustrate the application of the results in a (hopefully) realistic scenario, along with a brief discussion of the limitations of the model and analysis.

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            • Published in

              cover image ACM Transactions on Internet Technology
              ACM Transactions on Internet Technology  Volume 17, Issue 4
              Special Issue on Provenance of Online Data and Regular Papers
              November 2017
              165 pages
              ISSN:1533-5399
              EISSN:1557-6051
              DOI:10.1145/3133307
              • Editor:
              • Munindar P. Singh
              Issue’s Table of Contents

              Copyright © 2017 ACM

              Publisher

              Association for Computing Machinery

              New York, NY, United States

              Publication History

              • Published: 18 August 2017
              • Revised: 1 April 2017
              • Accepted: 1 April 2017
              • Received: 1 August 2016
              Published in toit Volume 17, Issue 4

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