Adoption of bundled services with network externalities and correlated affinities

Abstract: The goal of this paper is to develop a principled understanding of when it is beneficial to bundle technologies or services whose value is heavily dependent on the size of their user base, i.e., exhibits positive exernalities. Of interest is how the joint distribution, and in particular the correlation, of the values users assign to components of a bundle affect its odds of success. The results offer insight and guidelines for deciding when bundling new Internet technologies or services can help improve their overall adoption. In particular, successful outcomes appear to require a minimum level of value correlation.