Provisioning of large-scale systems: The interplay between network effects and strategic behavior in the user base

Jayakrishnan Nair, Adam Wierman, Bert Zwart

    Research output: Contribution to journalArticleAcademicpeer-review

    11 Citations (Scopus)

    Abstract

    In this paper, we consider the problem of capacity provisioning for an online service supported by advertising. We analyse the strategic interaction between the service provider and the user base in this setting, modeling positive network effects, as well as congestion sensitivity in the user base. We focus specifically on the influence of positive network effects, as well as the impact of noncooperative behavior in the user base on the firm's capacity provisioning decision and its profit. Our analysis reveals that stronger positive network effects, as well as noncooperation in the user base, drive the service into a more congested state and lead to increased profit for the service provider. However, the impact of noncooperation, or "anarchy" in the user base strongly dominates the impact of network effects.

    Original languageEnglish
    Pages (from-to)1830-1841
    Number of pages12
    JournalManagement Science
    Volume62
    Issue number6
    DOIs
    Publication statusPublished - Jun 2016

    Bibliographical note

    Publisher Copyright:
    © 2016 INFORMS.

    Keywords

    • Capacity provisioning
    • Large-scale queueing systems
    • Network effects
    • Online services

    Fingerprint

    Dive into the research topics of 'Provisioning of large-scale systems: The interplay between network effects and strategic behavior in the user base'. Together they form a unique fingerprint.

    Cite this