A new company providing cellular telephone service,
Springulizon, has identified 10 million potential subscribers
to its new cellular telephone network. The network operates
on a new standard that will allow Springulizon subscribers to
only talk to other Springulizon subscribers. 1 million of these
potential users are unconditional users: they will buy a
Springulizon phone regardless of how many other subscribers
there are. The remaining 9 million potential users are conditional users: they will only buy a Springulizon phone if the
network reaches a certain threshold network size. Suppose
that the threshold network size is 2 million. Springulizon
starts service, and initially 1 million unconditional users subscribe to Springulizon service.
a. In the current situation, will conditional users also want
to subscribe to Springulizon service?
b. Springulizon gives away 1 million free phones (complete
with service contracts) to 1 million conditional users in a
large-scale advertising campaign. Will the remaining 8
million conditional users now want to join the network?
c. Suppose each phone (complete with service contract)
costs $100. How much did it cost Springulizon to give
away the free phones? How much additional revenue did
it create by doing so? Therefore, was this advertising campaign worth it?