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

Designing Hybrid Mechanisms to Overcome Congestion in Sequential Dutch Auctions

2022 | Management Information Systems Quarterly | Citations: 1

Authors: Lu, Yixin; Gupta, Alok; Ketter, Wolfgang; Heck, Eric van

Abstract: A common problem in many mature markets is how to deal with congestion—a situati ... Expand

Abstract: A common problem in many mature markets is how to deal with congestion—a situation in which transaction requests from market participants cannot be accommodated in an expedited manner. This paper examines the congestion problem in sequential Dutch auction markets. Transactions in these markets typically involve perishable goods, making market clearing speed crucial. Traditionally, sequential Dutch auctions have been implemented with fast-paced auction clocks that process equally attractive bids in the order they arrive and only award the first bidder as the winner of each round, which can lead to serious congestion in case of a demand surge. We propose a hybrid mechanism that capitalizes on the discrete nature of the auction clock and batches together the highest bids, allowing multiple transactions at the same price in each round. To evaluate the performance of the hybrid mechanism, we first develop a game-theoretic model comparing the hybrid mechanism to the traditional sequential Dutch auction mechanism. Our model predicts that the hybrid mechanism will achieve higher operational efficiency without compromising allocative efficiency. We then complement the theoretical analysis by evaluating the hybrid mechanism through a quasi-natural field experiment. The empirical analysis of the field data shows that the hybrid mechanism can significantly speed up the market clearing process and increase price stability without affecting the expected revenue. Our findings shed new light on the design and operation of multi-unit auctions. Collapse

Topics: price dispersion price management willingness to pay data breach business-to-business

Methods: experiment pilot experiment field experiment descriptive statistic mathematical model

Theories: game theory

Contracting Decisions on Digital Markets for Knowledge Work Services: A Qualitative Systematic Review

2021 | International Conference on Information Systems | Citations: 0

Authors: Prester, Julian; Wagner, Gerit

Abstract: A growing amount of research is dedicated to digital markets for knowledge work ... Expand

Abstract: A growing amount of research is dedicated to digital markets for knowledge work services and contracting decisions as one of their most critical bottlenecks. Large-scale studies with average samples exceeding 144,000 observations have considered over 70 variables explaining contracting decisions. Our review aims to facilitate the convergence towards commonly agreed categories of variables and overarching models of contracting decisions in this context. To mitigate the risk of propagating deflated pvalues associated with large sample studies, we propose a robust version of votecounting techniques. The principal findings of our research suggest that only a few variables related to the client-worker relationship, the bid and individual worker characteristics have a practically significant effect on worker selection, and that auction success is primarily affected by project value and client experience. These findings lay the groundwork for future research that will lead to better explanations of contracting decisions. Collapse

Topics: knowledge work electronic market outsourcing accounting price dispersion

Methods: literature sample descriptive statistic structured literature research survey statistical power analysis

The Digital Sin City: An Empirical Study of Craigslist’s Impact on Prostitution Trends

2019 | Information Systems Research | Citations: 0

Authors: Chan, Jason; Mojumder, Probal; Ghose, Anindya

Abstract: The internet facilitates information flow between sex workers and buyers, making ... Expand

Abstract: The internet facilitates information flow between sex workers and buyers, making it easier to set up paid sexual transactions online. Despite the illegality of selling sexual services online, Section 230 of Communications Decency Act shields websites from liability for unlawful postings by third parties. Consequently, websites such as Craigslist have become a haven for prostitution-related ads. With prostitution-related sites still in operation, it is imperative to understand the link between these sites and prostitution trends. Specifically, in this paper, we quantify the economic impact of Craigslist’s entry on prostitution incidence and identify potential pathways in which the website affects the sex industry. Using a national panel data set for 1,796 U.S. counties from 1999 to 2008, our analyses suggest that entry of Craigslist to a county leads to a 17.58% increase in prostitution cases. In addition, the analyses reveal that a majority of prostitution activity on Craigslist is induced by organized vice groups, in addition to voluntary participation by smaller set of independent providers. Further, we find site entry has a stronger impact in counties with a past history of prostitution and produces spillover effects in neighboring locations that are not directly served by Craigslist. Sex workers providing niche sexual services are found to increase with site entry. In addition, we learn that site entry leads to an increase in transactions of existing workers and also attracts new workers to the market. We find that the increase in prostitution arrests does not catch up with the growth in prostitution trends brought in by Craigslist. Finally, we find complementarity effects between erotic and casual sex ads in leading to the increase of prostitution. Our results contribute broadly to the emerging literature on the societal challenges associated with online intermediaries and internet penetration, and serve to provide guidelines for policy makers in regulating the sex industry in the internet era. Collapse

Topics: criminality internet technology website societal challenge online review

Methods: longitudinal research difference in differences robustness check autocorrelation analysis natural experiment

The Dynamics of Online Consumers’ Response to Price Promotion

2019 | Information Systems Research | Citations: 0

Authors: Kim, Youngsoo; Krishnan, Ramayya

Abstract: We aim to understand the attitudinal and behavior states of the online consumer– ... Expand

Abstract: We aim to understand the attitudinal and behavior states of the online consumer–retailer relationship and its dynamics and, furthermore, to examine how consumers respond to price promotion as a function of the relationship. To do so, we build a hidden Markov model and estimate it with individual-level transaction data collected from a premier online retailer. Our quantification of transits across consumer–retailer relationship states provides unique insights. For example, price promotion can strengthen consumers’ loyalty only for consumers who are at least moderately loyal whereas it is not effective at changing nonloyal consumers’ attitudes toward an online retailer (i.e., from nonloyal to loyal). Unlike in the off-line market, consumers even in the strong relationship state are likely to seek more coupons as they increase their online shopping experience. The switching behavior observed even after online consumers reach the strong relationship state shows one aspect of the fierce price competition in the online market. Our results also suggest that managers of online retailers pay attention to the recent change in a consumer’s buying behaviors rather than the long-term trend of the consumer’s purchase behavior. For instance, an increase in recent purchase volume strengthens loyalty toward the retailer and/or the habit of buying without a coupon for consumers in the strong relationship state. These findings have important managerial and operational implications for devising a customized marketing mix strategy. Collapse

Topics: electronic commerce electronic market marketing management price dispersion switching cost

Methods: regression analysis method descriptive statistic qualitative interview longitudinal research hidden Markov model

Pricing or Advertising? A Game-Theoretic Analysis of Online Retailing

2019 | Journal of the Association for Information Systems | Citations: 0

Authors: Wen, Zhong; Lin, Lihui

Abstract: How should online retailers attract customers? Should they advertise intensivel ... Expand

Abstract: How should online retailers attract customers? Should they advertise intensively to attract online traffic, or should they simply price lower than their competitors? To answer these questions, we develop a game-theoretic model of two firms choosing advertising levels and prices strategically. We find that only asymmetric equilibria exist, where e-tailers choose different strategies along both advertising and pricing dimensions. When market mobility is low (i.e., the majority of buyers have high search costs), firms engage in fierce competition in advertising, and the firm with a higher advertising level charges a higher price and earns higher profits. When market mobility is high (i.e., the majority of buyers have zero search costs) or medium, one firm may choose to advertise intensely while the other may choose to charge a lower price and not advertise at all. In such cases, either firm may make higher profits. We also compare the market outcome in our model to the case in which firms do not have the option of advertising and find that the option to advertise leads to higher expected prices. We further extend the model to consider e-tailers choosing advertising levels sequentially. Collapse

Topics: advertising management price management price dispersion marketing management online advertising

Methods: game theoretical model

Theories: game theory

Electronic Markets and Geographic Competition Among Small, Local Firms

2018 | Information Systems Research | Citations: 15

Authors: Kitchens, Brent; Kumar, Anuj; Pathak, Praveen

Abstract: We study the impact of electronic markets on small, boutique firms selling prese ... Expand

Abstract: We study the impact of electronic markets on small, boutique firms selling presence goods or services—goods or services that must be consumed at the selling firm’s location. These firms have recently begun to compete on electronic markets by selling goods and services through local daily deal sites, such as Groupon and LivingSocial. We extract publicly available activity and spatial information from Groupon, LivingSocial, Google Maps, and Flickr to construct a unique panel data set to study daily deals offered by restaurants and spa vendors in geographical clusters of concentration in 167 distinct cities. This data set allows us to examine the effect of location on the competition vendors face in electronic markets. We find that as vendors in a particular geographical cluster participate in electronic markets, local competition increases and other vendors in that cluster join the electronic market and deepen discounts in response. However, vendors in other clusters in the same city remain relatively unaffected. We further analyze vendor ratings from Yelp and other infomediaries, to show that lesser known and low-quality vendors utilize the advertising effect of electronic markets to increase their awareness among customers. We further test the moderating effect of horizontal and vertical differentiation among firms in geographical clusters on competition in electronic markets, using measures extracted from UrbanSpoon.com. We find that clusters having lower differentiation experience higher competitive effects of firms joining the electronic market. Our findings provide empirical validation of the analytical results in existing literature in an important and understudied context: competition among small businesses selling presence goods and services. Our results have implications for firms and electronic market platforms.The online appendix is available at https://doi-org.tudelft.idm.oclc.org/10.1287/isre.2017.0754. Collapse

Topics: electronic market Google+ advertising management horizontal differentiation vertical differentiation

Methods: longitudinal research autocorrelation analysis descriptive statistic cluster analysis Z-test

High-frequency trading and its role in fragmented markets

2017 | Journal of Information Technology | Citations: 0

Authors: Haferkorn, Martin

Abstract: Securities trading underwent a major transformation within the last decade. This ... Expand

Abstract: Securities trading underwent a major transformation within the last decade. This transformation was mainly driven by the regulatory induced fragmentation and by the increase of high-frequency trading (HFT). On the basis of the electronic market hypothesis, which poses that coordination costs decline when markets become automated, and the efficient market hypothesis in its semi-strong form, we study the effect of HFT on market efficiency in the European fragmented market landscape. In doing so, we further incorporate the realm of financialization, which criticizes the increase in transaction speed. By conducting a long-term analysis of CAC 40 securities, we find that HFT increases market efficiency by leveling midpoints between Euronext Paris and Bats Chi-X Europe. On the basis of a cross-country event study, we analyze the effect of the German HFT Act. We observe that the midpoint dispersion of blue chip securities between the two leading venues Deutsche Boerse and Bats Chi-X Europe increased. We conclude that HFT increases market efficiency in the European market landscape by transmitting information between distant markets. Collapse

Topics: electronic market electronic trading technological change missing data price dispersion

Methods: longitudinal research event study autocorrelation analysis experimental group time series analysis

Electronic Commerce, Spatial Arbitrage, and Market Efficiency

2017 | Information Systems Research | Citations: 9

Authors: Subramanian, Hemang; Overby, Eric

Abstract: Electronic commerce can improve market efficiency by helping buyers and sellers ... Expand

Abstract: Electronic commerce can improve market efficiency by helping buyers and sellers find and transact with each other across geographic distance. We study the effect of two distinct forms of electronic commerce on market efficiency, which we measure via the existence and exploitation of spatial arbitrage opportunities. Spatial arbitrage represents a more precise measure of market efficiency than does price dispersion, which is typically used, because it accounts for the transaction costs of trading across distance and for unobserved product heterogeneity. One of the forms of electronic commerce that we study is a webcast channel that allows electronic access to the traditional physical market, while the other is a standalone electronic market. Both forms provide traders with expanded reach to find and transact with each other across geographic distance, but only one allows traders to conduct transactions immediately, at any time. This variance helps us isolate the effect of these mechanisms (reach and transaction immediacy) on efficiency. We find that electronic commerce reduces the number of arbitrage opportunities (likely by expanding traders’ geographic reach) but improves arbitrageurs’ ability to identify and exploit those that remain (likely by expanding arbitrageurs’ reach and providing them with the immediacy to exploit opportunities quickly). Overall, our results suggest that electronic commerce improves market efficiency not only by helping buyers and sellers transact across distance (thereby balancing supply and demand across geographic locations) but also by helping arbitrageurs quickly exploit any remaining arbitrage opportunities (thereby rebalancing supply and demand across geographic locations). Collapse

Topics: electronic commerce electronic market price dispersion logistics management website

Methods: descriptive statistic sensitivity analysis regression analysis method time series analysis longitudinal research

Theories: transaction cost economics

Comparing Open and Sealed Bid Auctions: Evidence from Online Labor Markets

2016 | Information Systems Research | Citations: 28

Authors: Hong, Yili; Wang, Chong (Alex); Pavlou, Paul A.

Abstract: Online labor markets are Web-based platforms that enable buyers to identify and ... Expand

Abstract: Online labor markets are Web-based platforms that enable buyers to identify and contract for information technology (IT) services with service providers using buyer-determined (BD) auctions. BD auctions in online labor markets either follow an open or a sealed bid format. We compare open and sealed bid auctions in online labor markets to identify which format is superior in terms of obtaining more bids and a higher buyer surplus. Our theoretical analysis suggests that the relative advantage of open versus sealed bid auctions hinges on the role of reducing service providers’ valuation uncertainty (difficulty in assessing the cost to execute a project) and competition uncertainty (difficulty in assessing the intensity of the competition from other service providers), which largely depend on the relative importance of the common value (versus the private value) component of the auctioned IT services, calling for an empirical investigation to compare open and sealed bid auctions. Based on a unique data set of 71,437 open bid auctions and 7,499 sealed bid auctions posted by 21,799 buyers at a leading online labor market, we find that, on average, although sealed bid auctions attract 18.4% more bids, open bid auctions offer buyers $10.87 higher surplus. Furthermore, open bid auctions are 55.3% more likely to result in a buyer’s selection of a certain service provider and 22.1% more likely to reach a contract (conditional on the buyer’s making a selection) with a provider, and they generate higher buyer satisfaction. In contrast to conventional wisdom that “the more bids the better” and industry practice of treating sealed bid auctions as a premium feature, our results suggest that the buyer surplus gained from the reduction in valuation uncertainty enabled by open bid auctions outweighs the buyer surplus gained from the higher competition uncertainty in sealed bid auctions, which renders open bid auctions a superior auction design in online labor markets. Collapse

Topics: online labor market IT investment database system price dispersion value creation

Methods: quantitative observational study instrumental variables estimation robustness check propensity score method Student's t-test