Impact of Own Brand Product Introduction on Optimal Pricing Models for Platform and Incumbent Sellers

2023 | Information Systems Research | Citations: 0

Authors: Cheng, Hsing Kenneth; Jung, Kyung Sung; Kwark, Young; Pu, Jingchuan

Abstract: Sales on the e-commerce platform in the United States have experienced explosive ... Expand

Abstract: Sales on the e-commerce platform in the United States have experienced explosive growth and are projected to surpass $740 billion in 2023. The expansion of the platform’s traditional role as a reseller into an online marketplace and the introduction of its own brand products have stoked a huge fear among the incumbent sellers. The platform’s unfair anticompetitive practice further aggravates the situation. Consequently, politicians and regulators have proposed prohibiting platforms from introducing own brand products to protect the incumbent sellers. This study addresses two questions of critical interest to both the policymakers and the incumbent sellers. First, how does the platform’s introducing its own brand product affect the incumbent sellers? Second, how effective is the proposed policy in terms of protecting the incumbent sellers? We examine the impact of the platform’s own brand introduction on the incumbent sellers under two prevailing sell-on and sell-to pricing contracts. We find that the proposed legislation “that prohibits platforms from both offering a marketplace for commerce and participating in that marketplace” does not have the desired outcome of helping the incumbent sellers. Instead, it forces the platform to adopt only the sell-to contract with the own brand introduction that hurts the sellers under most market conditions. Interestingly, when the own brand introduction is banned under the sell-to contract, the incumbent sellers can be better off because the platform’s strategic reaction to the enforcement can lead to the best scenario for the incumbent sellers. If the ban is imposed on both the sell-on and sell-to contracts, the platform’s best response is to add another new brand competing with the incumbent sellers, which can also help the incumbent sellers, however, not as much as in the case of the enforcement only under the sell-to contract. History: Ram Gopal, Senior Editor; Hong Xu, Associate Editor. Supplemental Material: The online appendices are available at https://doi.org/10.1287/isre.2022.1175. Collapse

Topics: price management electronic commerce duopoly competitive advantage marketing management

Methods: cross sectional research

Theories: game theory

Sequential IT Investment: Can the Risk of IT Implementation Failure Be Your Friend?

2023 | Information Systems Research | Citations: 0

Authors: Choudhary, Vidyanand; Xin, Mingdi; Zhang, Zhe

Abstract: An extensive literature studies the benefits for a firm to be the first to inves ... Expand

Abstract: An extensive literature studies the benefits for a firm to be the first to invest in innovative technologies such as information technologies (ITs). However, IT investment often faces the risk of implementation failure. How would such risk affect an early adopter’s incentive to invest? Do late adopters benefit from information about the early adopter’s investment? In this paper, we investigate these questions in a context in which two firms, a leader and a follower, invest in a cost-reducing IT sequentially. This paper differs from prior literature in two aspects: First, IT adoption is nonexclusive and available to all client firms. Second, IT implementation can fail. In this case, the follower may have information about the leader’s IT investment level or implementation outcome before making an investment decision. We use a Hotelling model of duopoly competition to examine how IT implementation failure risks and the follower’s knowledge about the leader’s IT investment may affect the firms’ incentive to sequentially invest in IT. Our results show that the risk of IT implementation failure impacts the firms’ investment incentives and profits through three distinct effects: the first mover advantage mitigation; competition mitigation; and uncertainty-driven, cost-based differentiation effects, and these three effects may drive the firms’ investment and profits in opposite directions. The follower’s knowledge about the leader’s IT investment level before making an IT investment decision gives the leader a first mover advantage and the follower a disadvantage. In contrast, the follower’s knowledge about the leader’s IT implementation outcome can benefit both the leader and the follower. Finally, we find that a spaced-out sequential IT investment schedule, in which the follower makes the investment decision after the leader’s IT investment level and implementation outcome are both known, leads to the highest industry-wide IT investment and social surplus. History: Kai-Lung Hui, Senior Editor; Sameer Hasija, Associate Editor. Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.1115. Collapse

Topics: IT investment systems implementation IS economics IS implementation success economic surplus

Theories: prisoner's dilemma game theory

Fair Play for Fair Pay: Fighting Digital Piracy through Revenue Sharing

2023 | International Conference on Information Systems | Citations: 0

Authors: Fereidouni, Meysam; Vijairaghavan, Vaarun

Abstract: ... Expand

Abstract: Collapse

Topics: digital piracy IS economics participatory design consumer surplus producer surplus

Methods: design methodology

Theories: game theory

Two-tier regulation models for the user-generated content platform: A game theoretic analysis

2023 | Decision Support Systems | Citations: 0

Authors: Nan, Guofang; Ding, Ning; Li, Guangyu; Li, Zhiyong; Li, Dahui

Abstract: This paper explores the optimal regulation strategies of the government and plat ... Expand

Abstract: This paper explores the optimal regulation strategies of the government and platforms to provide guidelines for how to maintain the order of user-generated content platforms and prevent adverse social events. The platform decides the intensity of regulation measures to be implemented on its content, and the government decides to enforce either direct or indirect regulation on platform content. The main result is that the platform’s regulation strategy depends on the relationship between the loss and fine caused by adverse social events and the cost to improve regulation intensity. We find that the optimal regulation strategy of the government depends largely on the potential probability occurrence of adverse social events and the efficiency of direct regulation. Competition prompts platforms to reduce regulation intensity, and counterintuitively, platform users can benefit from fierce competition. However, weak competition may result in lower consumer surplus in a duopoly market than in a monopoly market. In a duopoly market with greatly disparate intrinsic values of two platforms, the government can appropriately relax regulations. Collapse

Topics: duopoly IS economics consumer surplus user-generated content Facebook

Theories: game theory

Which Enemy to Dance with? A New Role of Software Piracy in Influencing Antipiracy Strategies

2023 | Information Systems Research | Citations: 0

Authors: Sun, Can; Ji, Yonghua; Geng, Xianjun

Abstract: Software piracy is a challenging issue faced by software firms and governments a ... Expand

Abstract: Software piracy is a challenging issue faced by software firms and governments all over the world. To control software piracy, firms exert considerable effort in antipiracy measures. This paper uses game theoretical models to study how software firms should determine their antipiracy efforts and product prices. There are two unique aspects of our model. First, antipiracy efforts have both a direct effect and a cross effect on software piracy. Second, we capture two types of competitions when piracy exists: one between a legitimate product and its pirated counterpart, and the other between two pirated products. We find several interesting results. We show that due to pirated products’ buffer effect not studied before, eliminating piracy does not necessarily mean higher profit for firms. This reveals an unexplored advantage of desktop software comparing with Software as a Service (SaaS) that can totally eliminate piracy. Direct and cross effects have different impacts on firms’ decisions and profits. Opposite to what one might expect, when a firm’s antipiracy effort becomes more effective in increasing the cost of pirating its own product but not its competitor’s product, the firm becomes worse off under certain conditions. By contrast, if the antipiracy effort’s cross effect is higher, therefore increasing the cost of pirating its competitor’s product, a firm will always be better off. The managerial implication is that if a firm ignores the cross effect, it could underinvest in antipiracy effort, causing its profit to suffer. History: Karthik Kannan, Senior Editor; Amit Mehra, Associate Editor. Funding: C. Sun’s research is supported by the National Natural Science Foundation of China [Grants 72201262, 71921001]. Collapse

Topics: network effect software as a service IS economics digital piracy consumer surplus

Methods: mathematical model survey computational algorithm

Theories: game theory

Answer Viewing Design on Paid Q&A Platforms

2022 | International Conference on Information Systems | Citations: 0

Authors: Gao, Yi; Mehra, Amit; Liu, Dengpan

Abstract: The low-participation problem has long been a challenge facing many paid Q&A pl ... Expand

Abstract: The low-participation problem has long been a challenge facing many paid Q&A platforms. Recently, a new business model wherein users, in addition to raising a question and receiving a personalized answer, can pay a small amount of fees to view a non-personalized answer to a question asked by others, has drawn considerable public attention and is considered an effective means to tackling such a challenge. In this paper, we build a theoretical model to explore whether this new business model benefits the key stakeholders (Q&A platform, answerers, and users). We find that the platform is not always better off when the answer-viewing feature is introduced. Another interesting finding is that while answerers may engage in direct competition with the platform, they can sometimes be better off. Additionally, we find that although having a new way to participate in the platform, users may sometimes be worse off under the answer-viewing feature. Collapse

Topics: price management consumer surplus IS economics business model user requirement

Methods: theoretical contribution optimization model theory development design methodology

Theories: game theory

Raising Skepticisms on the Feasibility of Algorithmic Tacit Collusion

2022 | International Conference on Information Systems | Citations: 0

Authors: Kang, Songhee; Kim, Myung Ho; Kim, Kibae

Abstract: Advances in artificial intelligence accelerate the digitization of pricing in v ... Expand

Abstract: Advances in artificial intelligence accelerate the digitization of pricing in various industry domains, from home appliances to hotels. At the same time, economic theories and legal cases claim that the advances benefit some players through synchronous algorithmic pricing, so-called Algorithmic Tacit Collusion (ATC). However, the previous studies rely on artificial intelligence's broad collusion mechanisms in various pricing scenarios. The paper unravels the mixture of ATC problems by specifying the algorithmic pricing context in platform providers' oligopoly and adjusting the underlying assumptions to the context. Our simulation of Iterative Prisoner's Dilemma (IPD) games with various heterogeneous pricing algorithms show that ATC emerges in rare conditions (i.e., algorithm and information symmetries). Our findings suggest that understanding the technology and business architectures should precede deriving the theories of ATC and implementing the legal cases and policies of digitization for the next generation's pricing. Collapse

Topics: price management digital platform digital distribution mobile application market virtual world

Methods: computational algorithm experiment simulation sensitivity analysis theoretical contribution

Theories: lemon market theory prisoner's dilemma

Freemium Strategy in Competitive App Markets: Maintaining Profitability with Product Fit Uncertainty

2022 | Journal of the Association for Information Systems | Citations: 0

Authors: Luo, Xiaoxiao; Zhang, Jie; Lu, Minqiang

Abstract: Today's app market is highly competitive and rapidly growing. This study consid ... Expand

Abstract: Today's app market is highly competitive and rapidly growing. This study considers two app developers with substitutable apps and a continuum of consumers with heterogeneous preferences. Each developer decides between offering a paid app and offering a free basic app with in-app purchases. Because of product fit uncertainty, consumers are not sure about the degree of misfit between the app and their preferences, and that uncertainty can be reduced by trying the free basic app. Using a game-theoretic modeling framework, we analyze how product fit uncertainty affects competing developers' profits and examine the scenario in which each developer offers a paid app or a free basic app with in-app purchases in a duopoly setting. The analytical results suggest that the developer can offer a free basic app for consumer learning even if the app is not underestimated. When either developer offers a free trial, the developer with the higher-quality app will prefer higher product fit uncertainty, but the one with the lower-quality app will favor lower product fit uncertainty. Additionally, as the app quality increases or consumer preferences become stronger, developers may switch the strategy depending on the reduction in product fit uncertainty caused by the free trial. Our study establishes the usefulness of the freemium strategy beyond the contexts analyzed in the literature. The results explain empirical observations of the app market and provide recommendations about the information disclosure of fit attributes in a competitive market. Collapse

Topics: mobile application duopoly mobile application market digital distribution data breach

Theories: prisoner's dilemma game theory

Competition Between Human and Artificial Intelligence in Digital Markets: An Experimental Analysis

2022 | International Conference on Information Systems | Citations: 0

Authors: Schauer, Andreas; Schnurr, Daniel

Abstract: In digital markets business decisions are increasingly taken by artificial inte ... Expand

Abstract: In digital markets business decisions are increasingly taken by artificial intelligence (AI). Especially in e-commerce, a growing share of retailers uses AI-driven algorithmic pricing, whereas remaining vendors rely on manual price setting. However, policymakers have raised concerns about anti-competitive tacit collusion between humans and AI that could allow firms to soften competition. Therefore, we empirically investigate outcomes that arise when humans and AI repeatedly interact in digital market environments. Based on an economic laboratory experiment in near real-time, we compare the degree of tacit collusion among humans and reinforcement learning algorithms to market settings where only humans or only algorithms compete. Preliminary findings demonstrate that tacit collusion emerges between humans and AI, although at lower levels than in settings with only humans or only algorithms. Altogether, our study sheds light on competition in digital markets where AI plays an increasingly important role and thus bears timely policy and managerial implications. Collapse

Topics: artificial intelligence price management electronic market duopoly human computer interaction

Methods: computational algorithm experiment reinforcement learning laboratory experiment simulation

Friends or foes? Strategic technology opening and adopting under competition between technological firms

2022 | Information & Management | Citations: 0

Authors: Wei, Yashuang; Ding, Chao; Nan, Guofang; Li, Shengli

Abstract: This study investigates the motivation behind an incumbent firm’s strategy to op ... Expand

Abstract: This study investigates the motivation behind an incumbent firm’s strategy to open up its technology and an entrant’s decision on whether to adopt this technology. We model the interactions between firms’ strategies toward coopetition and the entrant’s technology development capacity, as well as the technology transformation rate, which occurs in the technology adopting process. We find that the two technological parameters exert significant influence on the coopetition decisions of firms. Moreover, consumer surplus and social welfare are compared under different configurations. We further verify the robustness of our main results in two extension cases. Collapse

Topics: systems development IS economics information systems strategy horizontal differentiation network effect

Methods: game theoretical model mathematical model