Adaptation and the Providers Dilemma
13 Pages Posted: 7 Sep 2010 Last revised: 6 Sep 2014
Date Written: September 1, 2011
While attracting attention is one of the prime goals of content providers, the conversion of that attention into revenue is by no means obvious. Given that most users are used to consuming web content for free, a content provider faces a dilemma. Since the introduction of advertisements or subscription fees will be construed by users as an inconvenience which may deter them from using the website, what should the provider do in order to maximize revenues? We address this question through the lens of adaptation theory, which states that even though a change aects a person's utility initially, as time goes on people tend to adapt and become less aware of past changes. We establish that if the likelihood of attending to the provider is a log-convex function of the deviation of the total inconvenience from the reference point of a potential user, then it is always optimal for the provider to perform the increase in one step. Otherwise, the provider faces a tradeo between achieving a higher revenue per user sooner and maximizing the number of users in the long term.
Keywords: Attention Economies
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