Ad-sponsored Business Models and Compatibility Incentives of Social Networks
AbstractThis paper examines social networks' incentives to establish compatibility under fee and ad-sponsored business models. I analyze the competition between two social networks and show that compatibility is only possible when the two networks are ad-sponsored. I also find that even when both networks are ad-sponsored, a network with a significant installed-base advantage may choose not to be compatible when the cost from sharing the market outweighs the benefit from additional ad profits. Finally, compatibility also requires a significant number of single-homing users. The results are consistent with empirical observations of social networks and suggest that increased adoption of ad-sponsored business models may lead to many de-facto standards in high-technology industries.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 08-20.
Length: 24 pages
Date of creation: Sep 2008
Date of revision: Sep 2008
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Web page: http://www.NETinst.org/
Ad-sponsored; Compatibility; Social networks; Business models;
Find related papers by JEL classification:
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-21 (All new papers)
- NEP-IPR-2008-10-21 (Intellectual Property Rights)
- NEP-NET-2008-10-21 (Network Economics)
- NEP-SOC-2008-10-21 (Social Norms & Social Capital)
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