A Competition Model of Social Network Sites
Date Issued
2011
Date
2011
Author(s)
Tu, Pei-Fen
Abstract
Social Network Sites (SNSs) have grown rapidly and become more and more popular in recent years. As SNSs have a great potential to earn profit, many companies try to operate their own social network sites to earn benefits. As a result, there are a lot of competitors in the market. Although many competition models have been developed, they do not consider the specific features of SNSs. Therefore, in this thesis, we first identify the features of SNSs and then utilize these features to propose two competition models of SNSs, namely, homogeneous and heterogeneous. The users are homogeneous in terms of intrinsic preference in the former model while they are heterogeneous in the latter model. Then, we analyze and compare both models according to users’ constituents. The analytical results show that the investment of one site A decreases with the number of users in site A; however, it increases with the number of users in the rival site B if the number of users in site A is not much smaller than the number of users in site B because of network effect in both models. In addition, as B’s marginal profit increases, A’s investment increases in the homogeneous model and increases in the heterogeneous model only when B’s marginal profit is larger than A’s. Also, as A’s marginal profit increases, A’s investment decreases in the heterogeneous model; however, it is irrelevant in the homogeneous model. As for the profit, the profit of site A increases with A’s marginal profit and the number of users in A in both models. As B’s marginal profit and the number of users in B increase, A’s profit increases in the heterogeneous model; however, it decreases in the homogeneous model. This is because A’s investment increases with B’s marginal profit and the number of users in B in the homogeneous model, and thus A’s profit decreases. Nevertheless, A’s market share increases with B’s marginal profit and the number of users in B in the heterogeneous model, and thus A’s profit increases. Since the effects of the marginal profit and the number of users on the sites’ investment strategies and profits in the homogeneous model are different from those in the heterogeneous model, we suggest various optimal strategies for different user constituents.
Subjects
Social network site
Competition model
Network effect
Investment strategy
Game theory
Type
thesis
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