Survivor Curve Shape and Internet Revenue: A Laboratory Experiment
Hewlett-Packard Company - Social Computing Lab
University of California, Santa Cruz - Department of Economics
University of California, Santa Cruz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
Bernardo A. Huberman
February 12, 2013
When should a necessary inconvenience be introduced gradually, and when should it be imposed all at once? The question is crucial to web content providers, who in order to generate revenue must sooner or later introduce advertisements, subscription fees, or other inconveniences. In a setting where people eventually fully adapt to changes, the answer depends on the shape of the 'survivor curve' S(x), which represents the fraction of a user population willing to tolerate inconveniences of size x (Aperjis and Huberman 2011).
We report a new laboratory experiment that, for the first time, estimates the shape of survivor curves in several different settings. We engage laboratory subjects in a series of six desirable activities, e.g., playing a video game, viewing a chosen video clip, or earning money by answering questions. For each activity we introduce a chosen level x ∈ [xmin,xmax] of a particular inconvenience, and each subject chooses whether to tolerate the inconvenience or to switch to a bland activity for the remaining time.
Our key finding is that the survivor curve is log-concave in all six activities. Theory suggests that web content providers therefore will generally find it profitable to introduce inconveniences gradually over time, with the timing chosen to balance the number of long-term users against more rapid revenue acquisition.
Number of Pages in PDF File: 25
Keywords: Internet monetization, online advertising, pricing, reference points, adaptation, laboratory experimentworking papers series
Date posted: February 22, 2013
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