Subsidy policies in Internet competition: Implications for first-mover advantages

Positive network externality enables the Internet enterprises to attach great importance not only to the network size but also to the speed of the network size to be reached. Basing on the analysis of the development and expansion course of several typical e-commerce sites as pioneers of market segments, this paper discusses the subsidy policies of how these companies entered the various China´s e-commerce fields in advance, attracted and retained their users. Study shows that it is an indispensable means of competition for the Internet enterprises to adopt subsidy policies, which normally does not result in an enterprise´s financial distress. But, it will affect the growth of its profits, when subsidy policies are adopted improperly or employed without being innovated. At the same time, the degree of network externality is one of the factors affecting the outcome of subsidy policies.