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Provisioning of Large-Scale Systems: The Interplay Between Network Effects and Strategic Behavior in the User Base

Nair, Jayakrishnan and Wierman, Adam and Zwart, Bert (2016) Provisioning of Large-Scale Systems: The Interplay Between Network Effects and Strategic Behavior in the User Base. Management Science, 62 (6). pp. 1830-1841. ISSN 0025-1909 . http://resolver.caltech.edu/CaltechAUTHORS:20160701-073920780

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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.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1287/mnsc.2015.2210DOIArticle
http://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.2210PublisherArticle
Additional Information:© 2016 INFORMS. Received: August 7, 2012. Accepted: February 8, 2015. Published Online: November 20, 2015.
Subject Keywords:online services; capacity provisioning; network effects; large-scale queueing systems
Record Number:CaltechAUTHORS:20160701-073920780
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20160701-073920780
Official Citation:Jayakrishnan Nair, Adam Wierman, Bert Zwart (2016) Provisioning of Large-Scale Systems: The Interplay Between Network Effects and Strategic Behavior in the User Base. Management Science 62(6):1830-1841. http://dx.doi.org/10.1287/ mnsc.2015.2210
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:68799
Collection:CaltechAUTHORS
Deposited By: Ruth Sustaita
Deposited On:01 Jul 2016 16:31
Last Modified:01 Jul 2016 16:31

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