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

Social Sharing, Public Perception, and Brand Competition in a Horizontally Differentiated Market

2023 | Information Systems Research | Citations: 0

Authors: Gu, Zheyin (Jane); Li, Xinxin

Abstract: We examine how social sharing of consumers’ brand purchases affects brand compet ... Expand

Abstract: We examine how social sharing of consumers’ brand purchases affects brand competition in a market where different types of consumers, characterized by their distinct personal characteristics (i.e., personalities, hobbies, and lifestyles) and brand preferences (i.e., being loyal to one of two horizontally differentiated brands or neither), all desire accurate public perception of their true type. Social sharing of a consumer’s brand purchase allows the public to infer the consumer’s type, but such inference can be mistaken if a brand is purchased by multiple types of consumers. A consumer receives a higher public-perception utility from purchasing a brand if social sharing of the consumer’s purchase leads to a higher chance of accurate public perception. Our analysis shows that social sharing enhances the profit of the advantaged brand that attracts a larger size of loyal consumers but can hurt the profit of the disadvantaged brand that attracts a smaller size of loyal consumers. That is, in a horizontally differentiated market, social sharing may further strengthen the competitive status of the advantaged brand. Interestingly, the disadvantaged brand may become more likely to suffer from social sharing if it follows the conventional wisdom to expand the loyal segment. When the public can learn a consumer’s true type from other information sources (e.g., the consumer’s online blog), social sharing of consumers’ brand purchases brings a smaller profit gain to the advantaged brand. The disadvantaged brand may be better off or worse off, depending on the size of its loyal segment. Our theoretical findings shed light on how brands can devise competitive strategies to leverage the power of social media.History: Michael Zhang, Senior Editor; Hong Xu, Associate Editor.Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.1132. Collapse

Topics: social media personality smartphone price management willingness to pay

Methods: survey

Moving Consumers from Free to Fee in Platform-Based Markets: An Empirical Study of Multiplayer Online Battle Arena Games

2023 | Information Systems Research | Citations: 0

Authors: Wang, Le; Lowry, Paul Benjamin; Luo, Xin (Robert); Li, Han

Abstract: Companies in platform-based business markets have widely embraced freemium busin ... Expand

Abstract: Companies in platform-based business markets have widely embraced freemium business models where profit primarily depends on a minority of paying customers. However, the key challenge of these models is transitioning participants from free users to paying consumers. To encourage paid consumption, companies often rely on product differentiation such as providing consumers who pay for products or services with enhanced features. However, limited research has addressed how such product differentiation may convert consumers from “free” to “fee.” Our research examines the multiplayer online battle arena (MOBA) game as a compelling example of a freemium platform-based business model. We contribute to the freemium literature by introducing three new MOBA-specific differentiations—character competency, character variety, and character-appearance differentiation. We also extend consumption values theory into a dual-path model to unveil the underlying mechanisms through which product differentiation influences in-game purchase. We empirically validate our dual-path model using data from a two-wave longitudinal experiment and three cross-sectional experiments. Our findings support opposing mediating paths for product differentiation in character competency and variety and indicate that these two types of differentiation can indeed undermine perceived game fairness. Conversely, character-appearance differentiation exerts only a positive influence on players’ purchasing of in-game items. Consequently, the findings of this study have important potential implications for platform-based companies leveraging freemium business models that seek to increase their share of paying customers.History: Eric Zheng, Senior Editor; Robert Gregory, Associate Editor.Funding: This work was supported by the National Natural Science Foundation of China [Grants 71901172, 72171189, and 72132007], the China Postdoctoral Science Foundation [Grant 2020M673434], and the Social Science Foundation of Shaanxi Province [Grant 2021D002].Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.1127. Collapse

Topics: product differentiation free to play game social identity business model electronic mail

Methods: experiment survey experimental group longitudinal experiment longitudinal research

Platform Refund Insurance or Being Cast Out: Quantifying the Signaling Effect of Refund Options in the Online Service Marketplace

2023 | Information Systems Research | Citations: 0

Authors: Zheng, Jinyang; Wang, Youwei; Tan, Yong

Abstract: This study examines whether and how an online service marketplace can leverage r ... Expand

Abstract: This study examines whether and how an online service marketplace can leverage refund options endorsed by different parties (i.e., the platform or sellers) to address the “lemons” problem that is caused by the intangibility, variability, and unreturnable nature of the services sought. Through developing a signaling mechanism and a corresponding demand estimation model, we show that both platform refund insurance and a seller-guaranteed refund increase service demand, with platform refund insurance as the more effective option and hence having a more effective signaling mechanism. A reduced-form analysis suggests that sellers with a better reputation or less popularity might benefit less from refund options. An investigation on further use of the more effective refund option, a “having platform refund insurance or being cast out” policy (i.e., retaining platform refund-insured sellers but expelling uninsured ones), using counterfactual simulations and supply-side single interrupted time series designs, reveals the effectiveness of this policy in filtering out low-quality sellers, shown as an improved quality of sellers on the platform due to the change in sellers (i.e., new sellers’ replacing those who were expelled) both immediately after the policy and in the (near) equilibrium, yet a cost (i.e., a loss in demand and consumer welfare) for the platform in the (near) equilibrium due to the changes in characteristics (e.g., price) of sellers. This cost, however, is lower than the benefit from the improved quality of the sellers, so that the platform’s overall performance improves. The study also quantifies the consumer welfare of the online service marketplace and provides practical insight for consumers, sellers, and online service marketplace operators. History: Juan Feng, Senior Editor; Beibei Li, Associate Editor. Funding: This work was supported by the National Natural Science Foundation of China [Grants 71972047, 71831005, and 91746302]. Supplemental Material: The online supplement is available at https://doi.org/10.1287/isre.2022.1162. Collapse

Topics: consumer surplus IS economics electronic market service quality smart watch

Methods: simulation longitudinal research robustness check descriptive statistic time series analysis

Theories: lemon market theory signaling theory

Competitive Poaching in Search Advertising: Two Randomized Field Experiments

2022 | Information Systems Research | Citations: 0

Authors: Bhattacharya, Siddharth; Gong, Jing; Wattal, Sunil

Abstract: Keyword searches with brand names occur very commonly on search engines, enablin ... Expand

Abstract: Keyword searches with brand names occur very commonly on search engines, enabling firms to infer not only when consumers are searching for them but also when consumers are searching for their competitors. This enables firms to generate traffic from search advertising by bidding not only on their own keywords but also on competitors’ keywords. The strategy of bidding on competitors’ keywords, known as competitive poaching, presents unique opportunities for academic research. In this research, we examine the factors that influence the effectiveness of competitive poaching, specifically the role of different ad copies and the type of competitor (poached brand) from which a brand is poaching. We also examine how the presence of sponsored ads from the poached brand affects competitive poaching. We collected data from two randomized field experiments, one with a business school in the Northeastern United States and the other one with a leading automobile dealership company, where these firms bid on keywords of competing brands and randomly display different types of ad copies in the sponsored search listings. We find that, when poaching on keywords of high-quality brands, ad copies that feature vertical differentiation are more effective than the control ad copies, which do not convey any differentiation or prescriptive messages. We also find that when poaching from low-quality brands, ad copies featuring horizontal differentiation perform better than the control ad copies. Finally, we show that the presence of the poached brand’s own ad has a positive association with the ad effectiveness of the poaching brand when that poached brand is high quality and a negative association when the poached brand is low quality. The academic and managerial contributions are also discussed. Collapse

Topics: search engine search engine marketing vertical differentiation horizontal differentiation Google+

Methods: field experiment chi squared test experiment randomized field experiment Poisson regression

Designing subscription menu for software products: Whether to release a long-length option

2022 | Information & Management | Citations: 0

Authors: Feng, Nan; Su, Jia; Feng, Haiyang; Li, Minqiang

Abstract: An increasing number of information product vendors adopt a subscription-based b ... Expand

Abstract: An increasing number of information product vendors adopt a subscription-based business model and offer a menu of options with different subscription lengths for the same information product. This study adopts a horizontal differentiation model, wherein subscription options are differentiated only in the renewal lengths to make a comparison between the single- and two-option menus. The former offers one option only, whereas the latter offers both the short- and long-length options. Analytical results show that the basic value of the product and the unit misfit cost, which measures consumers’ disutility per unit distance between the actual and ideal subscription lengths, are critical factors in determining the optimal design of the subscription menu. The twooption menu dominates the single-option menu when the basic value and the unit misfit cost exceed certain thresholds. The impact of consumer churn rate on the design of the subscription menu is further examined. The two-option menu is more likely to be the dominant choice as the consumer churn rate increases. Moreover, the effect of the increase in the consumer churn rate on the pricing decision depends on the unit misfit cost. Given a higher consumer churn rate, only if the unit misfit cost is sufficiently low, vendors should improve the price for the short-length option and the price discount level for the long-length option; otherwise, the optimal pricing decision remains unchanged. After endogenizing the length of the long-length option, we discuss how the optimal number of periods of the long-length option varies with the product value, consumers’ cognitive cost, and unit misfit cost. The optimality of the multiple-option menu with more than two options is also explored. Collapse

Topics: horizontal differentiation price dispersion decision making user satisfaction price management

Methods: optimization model experiment mathematical model

Disintermediation and Its Mitigation in Online Two-sided Platforms: Evidence from Airbnb

2022 | International Conference on Information Systems | Citations: 0

Authors: Lin, Jinan; Nian, Tingting; Foutz, Natasha

Abstract: Disintermediation, where providers and customers transact bypassing an intermed ... Expand

Abstract: Disintermediation, where providers and customers transact bypassing an intermediary, has challenged the business model and dwindled profits of the multi-billion-dollar platform economy. Despite the platforms' efforts to mitigate disintermediation, little is known regarding the extent of disintermediation or efficacy of the mitigation policies, largely due to unobservability of disintermediation. We tackle these challenges by designing a geo-analytic methodology to identify and quantify disintermediation by matching online Airbnb booking and offline granular mobile location data. We further leverage DID with matching samples to causally examine the efficacy of four Airbnb policies; and finally propose a cost-and-benefit conceptual framework to interpret the findings and guide platform designs of mitigation policies. We find, for instance, a 5.4% of disintermediation in Austin, TX over Summer 2019; and Instant Bookable reduces disintermediation by 9%, with a stronger effect among the hosts without preference for long-term lease, with more repeated guests, and more hosting experience. Collapse

Topics: Airbnb geographic information system big data sharing platform Vrbo

Methods: experimental group geographic analytics propensity score matching robustness check topic model

Theories: transaction cost economics

Sponsored Data: Smarter Data Pricing with Incomplete Information

2022 | Information Systems Research | Citations: 0

Authors: Mei, Xiaowei; Cheng, Hsing Kenneth; Bandyopadhyay, Subhajyoti; Qiu, Liangfei; Wei, Lai

Abstract: With the upcoming next-generation 5G networks, mobile network operators (MNOs, s ... Expand

Abstract: With the upcoming next-generation 5G networks, mobile network operators (MNOs, such as AT&T, T-Mobile, and Verizon) are investigating new business models that encourage content providers (such as Netflix and Spotify) to sponsor data for consumers. Sponsored data allow customers to browse, stream, and enjoy content from their data sponsors without impacting their monthly data plan allowance. We analyze this recent phenomenon using an incomplete information game-theoretical model, where the MNO does not observe consumers’ types (personal valuation of mobile data) and provides multiple data plans to consumers. We find that the impact of sponsored data on consumer surplus crucially depends on whether the MNO has complete information over consumer types: Under complete information, sponsored data do not improve consumer surplus. However, under incomplete information, sponsored data increase consumer surplus. Our analysis also shows that under incomplete information, the MNO should allow sponsored data in a wider range of market conditions than those under complete information. Our study suggests that prior literature tends to underestimate both the long-run detrimental effect of sponsored data on content diversity and the short-run beneficial effect on consumer surplus. Our findings offer important managerial implications for the MNO, who is interested in optimizing the data plans, and for policymakers who regulate the wireless internet market. Collapse

Topics: IS economics consumer surplus economic surplus horizontal differentiation business model

Methods: optimization model longitudinal research data modeling

Theories: game theory lemon market theory

Platform Policies and Sellers' Competition in Agency Selling in the Presence of Online Quality Misrepresentation

2022 | Journal of Management Information Systems | Citations: 5

Authors: Pu, Jingchuan; Nian, Tingting; Qiu, Liangfei; Cheng, Hsing Kenneth

Abstract: On e-commerce platforms, consumers rely heavily on online reviews, sales volume, ... Expand

Abstract: On e-commerce platforms, consumers rely heavily on online reviews, sales volume, and social media discussions to infer product quality. As a result, the past decade has witnessed an explosive growth of seller-initiated misrepresentation of quality through fake reviews, fake sales, and fake posts. We develop an analytical model to investigate sellers' competition in quality misrepresentation in agency pricing and the platform's policies. The platform can discourage sellers' quality misrepresentations by increasing the cost of misrepresentation or implementing a more lenient product return policy. We find that while a stricter anti-misrepresentation policy deters the misrepresentation of the high-quality seller, such a strategy may unintendedly incentivize the low-quality seller to misrepresent the quality more. Furthermore, increasing return leniency deters low-quality seller's misrepresentation in a wider range of market conditions than increasing the misrepresentation cost. We show sellers' online quality misrepresentation behaviors in a competitive setting, and our results have practical implications for platform policies. Collapse

Topics: price management horizontal differentiation electronic market electronic commerce online review

Methods: mathematical model

Theories: prisoner's dilemma

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