Search

Information systems generate copious trace data about what individuals do and when they do it. Trace data may affect the resolution of lawsuits by, for example, changing the time needed for legal discovery. Trace data might speed resolution by clarifying what events happened when, or they might slow resolution by generating volumes of new and potentially irrelevant data that must be analyzed. To investigate this, we analyze the effect of electronic medical records (EMRs) on malpractice claim resolution time. Use of EMRs within hospitals at the time of the alleged malpractice is associated with a four-month (12%) reduction in resolution time. Because unresolved malpractice claims impose substantial costs on the entire healthcare system, our finding that EMRs are associated with faster resolution has broad welfare implications. Furthermore, as we increasingly digitize society, the ramifications of trace data on legal outcomes matter beyond the medical context. This paper was accepted by Teck Ho, information systems.

Platform marketplaces can potentially steer buyers to certain sellers by recommending or guaranteeing those sellers. Money-back guarantees—which create a direct financial stake for the platform in seller performance—might be particularly effective at steering as they align buyer and platform interests in creating a good match. We report the results of an experiment in which a platform marketplace—an online labor market—guaranteed select sellers for treated buyers. The presence of a guarantee strongly steered buyers to these guaranteed sellers, but offering guarantees did not increase sales overall, suggesting financial risk was not determinative for the marginal buyer. This preference for guaranteed sellers was not the result of their lower financial risk, but rather because buyers viewed the platform’s decision to guarantee as informative about relative seller quality. Indeed, a follow-up experiment showed that simply recommending the sellers that the platform would have guaranteed was equally effective at steering buyers. This paper was accepted by Chris Forman, information systems.

We test the hypothesis that information technology (IT) workers accept a compensating differential to work with emerging IT systems and that employers that invest in these systems can, in turn, capture greater value from the wages they pay. We show that much of the utility IT workers derive from these systems is from skills acquired on the job. This is principally true for younger workers at employers where skill development is encouraged, and the effects are stronger in thicker markets where workers with newer skills have more outside options. An analysis of the text in online employer reviews supports the notion that IT workers value access to interesting IT systems above most other employer attributes. These findings are important because (1) they provide evidence of how worker preferences can influence corporate IT investment decisions, (2) they shed light on factors influencing IT skill development, and (3) they point to a potentially important explanation for returns from IT investments. This paper was accepted by Chris Forman, information systems.

Platforms create value by matching participants on alternate sides of the marketplace. Although many platforms practice one-to-one matching (e.g., Uber), others can conduct and monetize one-to-many simultaneous matches (e.g., lead-marketing platforms). Both formats involve one dimension of private information, a participant’s valuation for exclusive or shared allocation, respectively. This paper studies the problem of designing an auction format for platforms that mix the modes rather than limit to one and, therefore, involve both dimensions of information. We focus on incentive-compatible auctions (i.e., where truthful bidding is optimal) because of ease of participation and implementation. We formulate the problem to find the revenue-maximizing incentive-compatible auction as a mathematical program. Although hard to solve, the mathematical program leads to heuristic auction designs that are simple to implement, provide good revenue, and have speedy performance, all critical in practice. It also enables creation of upper bounds on the (unknown) optimal auction revenue, which are useful benchmarks for our proposed auction designs. By demonstrating a tight gap for our proposed two-dimensional reserve-price-based mechanism, we prove that it has excellent revenue performance and places low information and computational burden on the platform and participants. This paper was accepted by Chris Forman, information systems.

Our dynamic model of information technology (IT) outsourcing integrates incomplete contracts, moral hazard, and adverse selection under both perfect and, more realistically, bounded rationality. In addition to the classical profit-maximizing firm unconstrained by ethics, we model an ethically constrained (but otherwise profit-maximizing) firm that honors its contractual obligations irrespective of legal restraints. We prove that under bounded rationality, the ethically constrained firm can obtain strictly greater profits than the unconstrained profit-maximizing firm, even when (i) the unconstrained firm has access to a superset of the ethical firm’s strategies and (ii) the ethical firm is unable to reveal its ethical commitment to its contracting partner anytime during the contractual relationship. Thus, a commitment to ethics, while of course being morally desirable, can lead to higher profits than the unbridled profit-maximization of classical economics. We also prove that ethics is foundational to both intellectual property (IP) sharing and reputation effects, two well-known facilitators of IT outsourcing. In fact, the mere possibility of ethical firms (a) forces across-the-board IP sharing even if it lowers profits and (b) induces even an ethically unconstrained firm to invest in developing a reputation for ethics. Our model provides a novel explanation, rooted in ethics, for why IT outsourcing is booming despite the formidable impediments of incomplete contracts, moral hazard, and adverse selection. This paper was accepted by Anandhi Bharadwaj, information systems.

This paper documents the increasing importance of software for successful innovation in manufacturing sectors well beyond the traditional definition of electronics and information technology. Using panel data for 229 publicly listed firms from 18 countries across four manufacturing industries over the period 1981–2005, we find significant variation across firms in the software intensity of their innovative activity. Firms that exhibit a higher level of software intensity generate more patents per R&D dollar, and their investment in R&D is more highly valued by equity markets. Data and the online appendix are available at https://doi.org/10.1287/mnsc.2017.2960 . This paper was accepted by Anandhi Bharadwaj, information systems.

We study the effect that internal information systems have on a firm’s leverage and corporate governance choices. Information systems lower governance costs by facilitating more targeted interventions. But they also generate asymmetric information between firms and their investors. As a result, firms may attempt to signal their superior quality by assuming more leverage. In some circumstances, this can reduce governance incentives and result in inferior outcomes. Investors anticipate this effect, and it renders information systems inefficient. The online appendix is available at https://doi.org/10.1287/mnsc.2016.2599 . This paper was accepted by Amit Seru, finance.

Over the past 10 years, many healthcare organizations have made significant investments in automating their clinical operations, mostly through the introduction of advanced information systems. Yet the impact of these investments on staffing is still not well understood. In this paper, we study the effect of information technology (IT)-enabled automation on staffing decisions in healthcare facilities. Using unique nursing home IT data from 2006 to 2012, we find that the licensed nurse staffing level decreases by 5.8% in high-end nursing homes but increases by 7.6% in low-end homes after the adoption of automation technology. Our research explains this by analyzing the interplay of two competing effects of automation: the substitution of technology for labor and the leveraging of complementarity between technology and labor. We also find that increased automation improves the ratings on clinical quality by 6.9% and decreases admissions of less profitable residents by 14.7% on average. These observations are consistent with the predictions of an analytical staffing model that incorporates technology adoption and vertical differentiation. Overall, these findings suggest that the impact of automation technology on staffing decisions depends crucially on a facility’s vertical position in the local marketplace. The online appendix is available at https://doi.org/10.1287/mnsc.2016.2695 . This paper was accepted by Chris Forman, information systems.

There is an increasing attention in information systems to be able to predict outcomes using search frequency on popular portals. This growing literature focuses on revealing demand patterns of individual assets (e.g., products, stocks, services). However, users typically search many different assets together (e.g., correlated searches) and leave a digital footprint, which can help provide insights on the behaviors of a group of assets. Furthermore, such group behavior can be used to predict outcomes (e.g., demand, stock returns) in the future. We analyze the underlying behavior of distinct subnetworks formed by correlated user searches for multiple items in the stock market and use such information for return prediction. Using cosearch data for stocks from Yahoo! Finance, we find 50–79 search clusters representing 230–349 stocks among Russell 3000 stocks at different time periods. These clusters reveal interesting habitats where the returns of stocks within a cluster tend to comove after controlling for known determinants of comovement. When a stock enters (departs) a cluster, the focal stock return comoves (detaches) with the cluster returns. Thus, search cluster–based habitats reveal aggregate investment preferences and are more granular than fundamental-based habitats. We find that search-based habitats can also improve return predictability of related stocks. This paper was accepted by Chris Forman, information systems.

Given the recent concern on “big governments” and rising budget deficits in the United States and European nations, there has been a fundamental economic debate on the proper boundary and role of governments in a society. Inspired by this debate, we study the relationship between information technology (IT) and government size. Drawing on a broad range of the literature from multiple disciplines such as information systems, industrial organization, and political sciences, we present several theoretical mechanisms that explain the impact of IT on government expenditures. Using a variety of data on IT spending and state government expenditures, we find that greater IT investments made by a state chief information officer (CIO) are associated with lower state government spending. It is estimated that on average, a $1 increase in state CIO budgets is associated with a reduction of as much as $3.49 in state overall expenditures. This study contributes to the literature by identifying a key technological factor that affects government spending and showing that IT investments can be a means to restrain government growth. This paper was accepted by Anandhi Bharadwaj, information systems.

Anand and Goyal [Anand KS, Goyal M (2009) Strategic information management under leakage in a supply chain. Management Sci. 55(3):438–452] propose a horizontal differentiation model to study information leakage and demand signaling in a supply chain. The authors present a composite equilibrium consisting of separating and pooling outcomes in different parameter regions and claim that it satisfies the intuitive criterion. We show that their analysis for the pooling equilibrium has errors and also that all pooling outcomes are actually eliminated by the intuitive criterion. The positive note is that if the undefeated equilibrium or the lexicographically maximum sequential equilibrium refinement is adopted, a similar composite equilibrium will be achieved, which will lead to qualitatively the same results as in the original paper. This paper was accepted by Chris Forman, information systems.

Online consumers are uncertain about subjective product quality (e.g., fit and feel of clothing and texture of materials) because of the absence of experiential information. In this paper, we examine the dynamic change of the products purchased online over time in the presence of this type of uncertainty. Using individual-level transaction data, we find that consumers purchase products with a high degree of product uncertainty as their online shopping experiences help them better estimate product quality. Our results also show that the average and highest prices of market baskets decrease (around 1%) when online shopping experience increases (10%). This implies that online consumers are reluctant to buy expensive products with only digitally transferred information, whereas they tend to purchase more of the cheaper products online along with their accumulated online shopping experience. We also verify the interaction effects of product uncertainty and product price on online consumers’ purchase decision. When online consumers buy products priced under $50, they readily buy products with a high degree of product uncertainty regardless of their online shopping experience. But consumers are unlikely to buy expensive products online if there is a high degree of product uncertainty, even when they have accumulated much online shopping experience. In addition, we find that online vendors can effectively overcome product-level uncertainty by taking advantage of retailer reputation in the physical world and through the use of digitized video commercials. Our study on the dynamics in the set of products purchased online expands the understanding of consumer purchase behavior under uncertainty. This paper was accepted by Lorin Hitt, information systems.

Online product ratings are widely available on the Internet and are known to influence prospective buyers. An emerging literature has started to look at how ratings are generated and, in particular, how they are influenced by prior ratings. We study the social influence of prior ratings and, in particular, investigate any differential impact of prior ratings by strangers (“crowd”) versus friends. We find evidence of both herding and differentiation behavior in crowd ratings wherein users’ ratings are influenced positively or negatively by prior ratings depending on movie popularity. In contrast, friends’ ratings always induce herding. Further, the presence of social networking reduces the likelihood of herding on prior ratings by the crowd. Finally, we find that an increase in the number of friends who can potentially observe a user’s rating (“audience size”) has a positive impact on ratings. These findings raise questions about the reliability of ratings as unbiased indicators of quality and advocate the need for techniques to debias rating systems. This paper was accepted by Sandra Slaughter, information systems.

Joint product display in videos may help customers to not only evaluate the attributes of products that can influence their individual demands (direct effect) but also learn about the complementarity between them that may cause additional correlation in their demands (spillover effect). To estimate the demand effects, we introduced videos displaying apparel with matching accessories for a few randomly selected apparel on a fashion retailer’s website. We found that introducing a video resulted in a 14.5% increase in apparel sales and a 28.3% increase in accessories sales. The estimated increase in accessories sales was largely attributed to the spillover effect of videos. Moreover, introducing videos with other product promotions resulted in a significantly higher effect of videos on product demands. Overall, we show how video display of related products can increase their demands in an online product network. This paper was accepted by Sandra Slaughter, information systems.

Electronic commerce allows bidders to find and participate in auctions regardless of location. This reduction in bidders’ search costs has important effects on bidders’ participation patterns and sellers’ revenue. The “demand expansion” effect occurs when reduced search costs allow bidders to participate in more auctions. The “demand distribution” effect occurs when reduced search costs allow bidders to distribute themselves more evenly across auctions. We focus on the latter effect by modeling when a more even distribution of bidder participation across auctions increases seller revenue. We apply our analytical insights to 65,718 sequential auctions (comprising over 10 million vehicles) in the wholesale used vehicle market. We show that reduced search costs can increase seller revenue by smoothing the distribution of bidder participation across auctions, even if the aggregate amount of bidder participation remains constant. This contributes new results to the auction theory literature and generates novel insights for sellers seeking increased revenue. This paper was accepted by Lorin Hitt, information systems.

We propose a dynamic structural model that illuminates the economic mechanisms shaping individual behavior and outcomes on crowdsourced ideation platforms. We estimate the model using a rich data set obtained from IdeaStorm.com, a crowdsourced ideation initiative affiliated with Dell. We find that, on IdeaStorm.com, individuals tend to significantly underestimate the costs to the firm for implementing their ideas but overestimate the potential of their ideas in the initial stages of the crowdsourcing process. Therefore, the “idea market” is initially overcrowded with ideas that are less likely to be implemented. However, individuals learn about both their abilities to come up with high-potential ideas as well as the cost structure of the firm from peer voting on their ideas and the firm's response to contributed ideas. We find that individuals learn rather quickly about their abilities to come up with high-potential ideas, but the learning regarding the firm's cost structure is quite slow. Contributors of low-potential ideas eventually become inactive, whereas the high-potential idea contributors remain active. As a result, over time, the average potential of generated ideas increases while the number of ideas contributed decreases. Hence, the decrease in the number of ideas generated represents market efficiency through self-selection rather than its failure. Through counterfactuals, we show that providing more precise cost signals to individuals can accelerate the filtering process. Increasing the total number of ideas to respond to and improving the response speed will lead to more idea contributions. However, failure to distinguish between high- and low-potential ideas and between high- and low-ability idea generators leads to the overall potential of the ideas generated to drop significantly. This paper was accepted by Sandra Slaughter, information systems.

Mobile technologies enable marketers to target consumers by time and location. This study builds on a large-scale randomized experiment of short message service (SMS) texts sent to 12,265 mobile users. We draw on contextual marketing theory to hypothesize how different combinations of mobile targeting determine consumer responses to mobile promotions. We identify that temporal targeting and geographical targeting individually increase sales purchases. Surprisingly, the sales effects of employing these two strategies simultaneously are not straightforward. When targeting proximal mobile users, our findings reveal a negative sales–lead time relationship; sending same-day mobile promotions yields an increase in the odds of consumer purchases compared with sending them two days prior to the promoted event. However, when targeting nonproximal mobile users, there is an inverted-U, curvilinear relationship. Sending one-day prior SMSs yields an increase in the odds of consumer purchases by 9.5 times compared with same-day SMSs and an increase in the odds of consumer purchases by 71% compared with two-day prior SMSs. These results are robust to unobserved heterogeneity, alternative estimation models, bootstrapped resamples, randomization checks, consumer mobile usage behavior, and segmentation of consumer scenarios. In addition, we conducted follow-up surveys to delve into the psychological mechanisms explaining the findings in our field experiment. In line with consumer construal arguments, consumers who received SMSs close (far) in time and location formed a more (less) concrete mental construal, which in turn, increased their involvement and purchase intent. These findings suggest that understanding the when, where, and how of mobile targeting strategies is crucial. Marketers can save money by carefully designing their mobile targeting campaigns. This paper was accepted by Sandra Slaughter, information systems.

In this paper, we study the effects of three different kinds of search engine rankings on consumer behavior and search engine revenues: direct ranking effect, interaction effect between ranking and product ratings, and personalized ranking effect. We combine a hierarchical Bayesian model estimated on approximately one million online sessions from Travelocity, together with randomized experiments using a real-world hotel search engine application. Our archival data analysis and randomized experiments are consistent in demonstrating the following: (1) A consumer-utility-based ranking mechanism can lead to a significant increase in overall search engine revenue. (2) Significant interplay occurs between search engine ranking and product ratings. An inferior position on the search engine affects “higher-class” hotels more adversely. On the other hand, hotels with a lower customer rating are more likely to benefit from being placed on the top of the screen. These findings illustrate that product search engines could benefit from directly incorporating signals from social media into their ranking algorithms. (3) Our randomized experiments also reveal that an “active” personalized ranking system (wherein users can interact with and customize the ranking algorithm) leads to higher clicks but lower purchase propensities and lower search engine revenue compared with a “passive” personalized ranking system (wherein users cannot interact with the ranking algorithm). This result suggests that providing more information during the decision-making process may lead to fewer consumer purchases because of information overload. Therefore, product search engines should not adopt personalized ranking systems by default. Overall, our study unravels the economic impact of ranking and its interaction with social media on product search engines. This paper was accepted by Lorin Hitt, information systems.

This paper considers how labor market factors have shaped early returns to investment in big data technologies. It tests the hypothesis that returns to early investments in Hadoop — a key big data infrastructure technology — have been concentrated in select labor markets due to the importance of aggregate corporate investment levels within a labor market for producing a supply of complementary technical skills during the early stages of technology diffusion. The analysis uses a new data source — the LinkedIn skills database — enabling direct measurement of firms’ investments into emerging technical skills such as Hadoop, Map/Reduce, and Apache Pig. Productivity estimates indicate that from 2006 to 2011, firms’ Hadoop investments were associated with 3% faster productivity growth, but only for firms a) with significant existing data assets and b) in labor networks characterized by significant aggregate Hadoop investment. Evidence for the importance of labor market concentration disappears for investments in mature data technologies, such as SQL-based databases, for which the skills are diffused and readily available through universities and other channels. These findings underscore the importance of geography, corporate investment, and channels for technical skill acquisition for explaining differences in productivity growth rates across labor markets during the spread of new IT innovations.

This study develops optimal transfer pricing schemes that manage software reuse in incremental software development, namely, a development regime wherein users begin utilizing parts of the system that are released to them even before the system is entirely completed. In this setting, conflicts can arise between developers and users from divergent interests concerning the release of functionalities in the project. The release of functionalities is influenced by reuse, i.e., the effort spent by the development team to write code that can be reused within the same project or in future projects. For example, the development team may choose to spend extra effort to make certain portions of the system reusable because doing so could reduce the effort needed to develop the entire system. However, the additional effort spent on reuse could delay the release of certain critical functionality, making such a strategy suboptimal for the users. Thus, optimal reuse decisions for developers and users could be different. In addition, from the firm's perspective, reuse decisions must not only balance the objectives of developers and users for the current project, but reuse effort may be spent to benefit future projects. Our study also highlights the fact that reuse may not always be beneficial for the firm. To this end, we consider different instances of the user–developer conflict and provide transfer pricing schemes that operate under information asymmetry and achieve two key properties: firm-level optimality and truth revelation. This paper was accepted by Sandra Slaughter, information systems.

This paper examines the effects of providing broadband to schools on students' performance. We use a rich panel of data on broadband use and students' grades from all middle schools in Portugal. Employing a first-differences specification to control for school-specific unobserved effects and instrumenting the quality of broadband to account for unobserved time-varying effects, we show that high levels of broadband use in schools were detrimental for grades on the ninth-grade national exams in Portugal. For the average broadband use in schools, grades reduced 0.78 of a standard deviation from 2005 to 2009. We also show that broadband has a negative impact on exam scores regardless of gender, subject, or school quality and that the way schools allow students to use the Internet affects their performance. In particular, students in schools that block access to websites such as YouTube perform relatively better. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1770 . This paper was accepted by Lorin Hitt, information systems.

The movement of information technology (IT) workers among firms is believed to be an important mechanism by which IT-related innovations diffuse throughout the economy. We use a newly developed source of employee microdata—an online resume database—to model IT workers' mobility patterns. We find that firms derive significant productivity benefits from the IT investments of other firms from which they hire IT labor. Our estimates indicate that over the last two decades, productivity spillovers from the IT investments of other firms transmitted through this channel have contributed 20%–30% as much to productivity growth as firms' own IT investments. Moreover, we find that the productivity benefits of locating near other IT-intensive firms can primarily be explained by the mobility of technical workers within the region. Our results are unique to the flow of IT workers among firms, not other occupations, which rules out some alternative explanations related to the similarity of firms that participate in the same labor flow network. This paper was accepted by Yu (Jeffrey) Hu, guest department editor, information systems.

How do firms respond to entry in multi-sided markets? We address this question by studying the impact of Craigslist, a website providing classified-advertising services, on local U.S. newspapers. We exploit temporal and geographical variation in Craigslist's entry to show that newspapers with greater reliance on classified-ad revenue experience a larger drop in classified-ad rates after Craigslist's entry. The impact of Craigslist's entry on the classified-ad side appears to propagate to other sides of the newspapers' market. On the subscriber side, these newspapers experience an increase in subscription prices, a decrease in circulation, and an increase in differentiation from each other. On the display-ad side, affected newspapers experience a decrease in display-ad rates. We also find evidence that affected newspapers are less likely to make their content available online. Finally, we estimate that Craigslist's entry leads to $5.0 billion (year 2000 dollars) in savings to classified-ad buyers during 2000–2007. This paper was accepted by Sandra Slaughter, information systems.

We examine whether ownership of intellectual property rights (IPR) or downstream capabilities is effective in encouraging entry into markets complementary to a proprietary platform by preventing the platform owner from expropriating rents from start-ups. We study this question in the context of the software industry, an environment where evidence of the efficacy of IPR as a mechanism to appropriate the returns from innovation has been mixed. Entry, in our context, is measured by an independent software vendor's (ISV's) decision to become certified by a platform owner and produce applications compatible with the platform. We find that ISVs with a greater stock of formal IPR (such as patents and copyrights), and those with stronger downstream capabilities (as measured by trademarks and consulting services) are more likely to join the platform, suggesting that these mechanisms are effective in protecting ISVs from the threat of expropriation. We also find that the effects of IPR on the likelihood of partnership are greater when an ISV has weak downstream capabilities or when the threat of imitation is greater, such as when the markets served by the ISV are growing quickly. This paper was accepted by Gérard P. Cachon, information systems.

We study the online market for peer-to-peer (P2P) lending, in which individuals bid on unsecured microloans sought by other individual borrowers. Using a large sample of consummated and failed listings from the largest online P2P lending marketplace, Prosper.com, we find that the online friendships of borrowers act as signals of credit quality. Friendships increase the probability of successful funding, lower interest rates on funded loans, and are associated with lower ex post default rates. The economic effects of friendships show a striking gradation based on the roles and identities of the friends. We discuss the implications of our findings for the disintermediation of financial markets and the design of decentralized electronic markets. This paper was accepted by Sandra Slaughter, information systems.

One central business activity that companies increasingly outsource is the information systems (IS) function. Previous research has shown that outsourcing of back-office IS generally has a positive effect on shareholder value of the outsourcing firm. Much less is known about the performance implications of outsourcing of another important IS function, namely, front-office customer relationship management (CRM) systems, where the vendor uses its own personnel and software to perform several CRM tasks. Previous, largely anecdotal evidence shows that the performance implications of outsourcing CRM range from very negative to very positive. To address this unsatisfactory state of knowledge, we provide and empirically test a contingency perspective on the performance implications of outsourcing CRM processes. We do so using the event-study methodology. The results are largely consistent with our contingency model. CRM outsourcing is more beneficial to firms that are high on information technology capabilities and low on marketing capabilities, and less beneficial when it concerns presales CRM. Similarly, although vendor economic distance has a positive influence on the outsourcing firm's shareholder value, vendor cultural distance has a negative influence. These effects are in turn significantly moderated by the type of CRM process outsourced. This paper was accepted by Sandra Slaughter, information systems.

The rapid pace of technological innovation necessitates that information technology (IT) services firms continually invest in replenishing the skills of their key asset base, the human capital. We examine whether human capital investments directed toward employee training are effective in improving employee performance. Our rich employee level panel data set affords us the opportunity to link formal training with performance at the individual employee level. Using a dynamic panel model, we identify a significant positive impact of training on employee performance. A unit increase in training is linked to a 2.14% increase in an employee's performance. Interestingly, we find that in the IT sector, skills atrophy and consequently high-experience employees reap higher returns from training, which highlights the uniquely dynamic nature of IT knowledge and skills. We also find that general training that an employee can utilize outside the focal firm improves employee performance. However, specific training pertinent to the focal firm is not positively linked to performance. On the other hand, although domain and technical training both enhance employee performance individually, the interaction between the two suggests a substitutive relationship. Thus, our findings suggest that the value of training is conditional on a focused curricular approach that emphasizes a structured competency development program. Our findings have both theoretical and practical significance. Most important, they justify increased human capital investments to fuel future growth in this important component of the global economy. This paper was accepted by Lorin Hitt, information systems.

This study investigates the effect of information technology (IT) architecture flexibility on strategic alliance formation and firm value. We first examine the effect of three dimensions of IT architecture flexibility (open communication standards, cross-functional transparency, and modularity) on formation of three types of alliances (arm's-length, collaborative, and joint-venture alliances, respectively). Then, we examine how capabilities in IT flexibility can enhance the value derived from alliances. Our sample includes data from 169 firms that are publicly listed in the United States and that span multiple industries. We find that adoption of open communication standards is associated with the formation of arm's-length alliances, and modularity of IT architecture is associated with the formation of joint ventures. We also find that IT architecture flexibility enhances the value of arm's-length, collaborative, and joint-venture alliances. The contribution of IT flexibility to value is greater in the case of collaborative alliances than in arm's-length alliances. Taken together, these findings suggest that appropriate investments in IT can help to facilitate reconfiguration of resources and modification of processes in collaboration-intensive alliances. This paper was accepted by Ramayya Krishnan, information systems.

An important current trend in advertising is the replacement of traditional pay-per-exposure (pay-per-impression) pricing models with performance-based mechanisms in which advertisers pay only for measurable actions by consumers. Such pay-per-action (PPA) mechanisms are becoming the predominant method of selling advertising on the Internet. Well-known examples include pay-per-click, pay-per-call and pay-per-sale. This work highlights an important, and hitherto unrecognized, side-effect of PPA advertising. I find that, if the prices of advertised goods are endogenously determined by advertisers to maximize profits net of advertising expenses, PPA mechanisms induce firms to distort the prices of their goods (usually upwards) relative to prices that would maximize profits in settings where advertising is sold under pay-per-exposure methods. Upward price distortions reduce both consumer surplus and the joint publisher-advertiser profit, leading to a net reduction in social welfare. They persist in current auction-based PPA mechanisms, such as the ones used by Google and Yahoo. In the latter settings they always reduce publisher revenues relative to pay-per-exposure methods. In extreme cases they also lead to rat-race situations where, in their effort to outbid one another, advertisers raise the prices of their products to the point where demand for them drops to zero. I show that these phenomena constitute a form of double marginalization and discuss a number of enhancements to today's PPA mechanisms that restore equilibrium pricing of advertised goods to efficient levels.

This paper examines the relationship between information technology (IT) and trademarks. Using an 11-year panel data set (1987–1997) of IT capital stock, trademark holdings, and other measures for 116 Fortune 1000 manufacturing firms, we find that IT contributes to higher trademark holdings. Further, we find evidence suggesting that firms with more IT capital tend to apply for more new trademarks and retire existing trademarks more quickly, leading to a shorter trademark life cycle. Because trademarks are mainly used by firms to communicate differences among similar products to the marketplace, these results suggest that the business value of IT can be realized in greater product variety. This paper was accepted by Barrie Nault, information systems.

We test for three-way complementarities among information technology (IT), performance pay, and human resource (HR) analytics practices. We develop a principal–agent model examining how these practices work together as an incentive system that produces a larger productivity premium when the practices are implemented in concert rather than separately. We assess our model by combining fine-grained data on human capital management (HCM) software adoption over 11 years with detailed survey data on incentive systems and HR analytics practices for 189 firms. We find that the adoption of HCM software is greatest in firms that have also adopted performance pay and HR analytics practices. Furthermore, HCM adoption is associated with a large productivity premium when it is implemented as a system of organizational incentives, but has less benefit when adopted in isolation. The system of three-way complements produces disproportionately greater benefits than pairwise interactions, highlighting the importance of including all three complements. Productivity increases significantly when the HCM systems “go live” but not when they are purchased, which can be years earlier. This helps rule out reverse causality as an explanation for our findings. This paper was accepted by Sandra Slaughter, information systems.

Combinatorial auctions—in which bidders can bid on combinations of goods—can increase the economic efficiency of a trade when goods have complementarities. Recent theoretical developments have lessened the computational complexity of these auctions, but the issue of cognitive complexity remains an unexplored barrier for the online marketplace. This study uses a data-driven approach to explore how bidders react to the complexity in such auctions using three experimental feedback treatments. Using cluster analyses of the bids and the clicks generated by bidders, we find three stable bidder strategies across the three treatments. Further, these strategies are robust for separate experiments using a different setup. We also benchmark the continuous auctions against an iterative form of combinatorial auction—the combinatorial clock auction. The enumeration of the bidding strategies across different types of feedback, along with the analysis of their economic implications, is offered to help practitioners design better combinatorial auction environments. This paper was accepted by Lorin Hitt, information systems.

Geographic variation in consumer use of Internet retailers is partly explained by variation in offline shopping costs. Explanations for geographic variation in the efficacy of different customer acquisition methods including traditional methods of offline word-of-mouth (WOM) and magazine advertising and information systems (IS)-enabled methods of online WOM and online search remain unexplored. We estimate a multivariate negative binomial distribution (NBD) model on zip code–level customer counts from a leading Internet retailer and provide new insights into factors explaining geographic variation in the success of these methods. First, we show that target customer density explains geographic variation over and above the impact due to the number of potential customers. Moreover, the effect of density is greatest for offline and online WOM acquisitions; this suggests that density contributes to contagion, connectivity, and a hypothesized “social multiplier.” Second, when senders and recipients of WOM share consumption benefits, WOM is more powerful and compelling. We find that location-based convenience benefits have stronger effects on location-dependent offline WOM acquisitions than on location-independent online WOM acquisitions. Third, acquisition channels contribute differently to the total customer pool—offline WOM acquisitions are clustered, whereas magazine acquisitions are dispersed. Finally, separate click-to-conversion data from Coremetrics.com indicates that using the model-based predictions to target specific markets delivers a twofold improvement in actual click-to-order rates. This paper was accepted by Sandra Slaughter, information systems.

As much as 12%% of the daily volume on the New York Stock Exchange, and similar volumes on other major world exchanges, involves sales by institutional investors to brokers through blind portfolio auctions. Such transactions typically take the form of a first-price sealed-bid auction in which the seller engages a few potential brokers and provides limited information about the portfolio being sold. Uncertainty about the portfolio contents reduces bids, effectively increasing the transaction cost paid by the seller. We consider the use of a trusted intermediary or equivalent cryptographic protocol to reduce transaction costs. In particular, we propose a mechanism through which each party provides relevant private information to an intermediary who ultimately reveals only the portfolio contents and price paid, and only to the seller and winning broker. Through analysis of a game-theoretic model, we demonstrate substantial potential benefits to sellers. For example, under reasonable assumptions a seller can reduce expected transaction costs by more than 10%. This paper was accepted by Wei Xiong, finance.

This paper examines renegotiation design in contracts for outsourced information technology (IT) services. Whereas prior literature in information systems has highlighted the likelihood of ex post rent seeking engendered by renegotiation, we build upon literature on incomplete contracts to posit that renegotiation can be Pareto improving by incorporating contingencies revealed ex post. Research on contract renegotiation has been hampered by two sets of challenges: the lack of appropriate data and empirical challenges in identification. We circumvent this problem both by appropriate data collection and by employing an identification strategy to address alternate causal explanations. We propose a measure, Pareto improving amendments, to assess renegotiation outcomes that enhance the value from outsourcing by hazard equilibration and by incorporating learning. Using a unique sample of 141 IT outsourcing contracts, we examine the role of decision rights delineated ex ante in enabling Pareto improving amendments and in resolving the trade-off between adaptation and rent seeking. We find that flexibility provisions, termination for convenience rights, and contractual rights whereby vendors are granted rights to reuse know-how are associated with Pareto improving amendments. The results are robust to potential endogeneity of contractual provisions when parties have feasible foresight and to the possibility of adverse selection in the sample. We also examine alternate explanations from the literature on contractual breach. Implications for practitioners and researchers are discussed. This paper was accepted by Sandra Slaughter, information systems.

We combine new information technology (IT) offshoring and IT workforce microdata to investigate how the use of IT offshore captive centers is affecting the skill composition of the U.S. onshore IT workforce. The analysis is based on the theory that occupations involving tasks that are “tradable,” such as tasks that require little personal communication or hands-on interaction with U.S.-based objects, are vulnerable to being moved offshore. Consistent with this theory, we find that firms that have offshore IT captive centers have 8% less of their onshore IT workforce involved in tradable occupations; those without offshore captive centers have increased the proportion of onshore employment in these same occupations by 3%. In addition, we find that hourly IT workers (e.g., IT contractors) are disproportionately employed in tradable jobs, and their onshore employment is 2%–3% lower in firms with offshore captive centers. These findings persist after considering different measures of employment composition, including controls for human capital, firm performance, domestic outsourcing, and whether firms choose to build or buy software. Instrumental variables and corroborating regressions suggest that our estimates are conservative—the magnitude of the effect generally rises after accounting for reverse causality and measurement error. This paper was accepted by by Chris Forman, guest department editor.

This paper studies outsourcing decisions for a two-level service process in which the first level serves as a gatekeeper for a second level of experts. The objective of the system operator (the client) is to minimize the sum of staffing costs, customer waiting costs, and mistreatment costs due to unsuccessful attempts by a gatekeeper to solve the customer's problem. The client may outsource all or part of the process to a vendor, and first-best contracts exist when the client outsources only gatekeepers or experts. When the client outsources the entire system as a two-level process, a client-optimal contract may not exist unless the exogenous system parameters satisfy a particular (and unlikely) coordination condition. In addition, optimal incentive-compatible contracts exist when the vendor's structure choice (one level or two levels) can deviate from the client's preference. Finally, we numerically examine how vendor structure choice and labor cost advantages influence the client's optimal outsourcing option. This paper was accepted by Martin Lariviere, operations management.

We analyze how entrepreneurial opportunity cost conditions performance. Departing from the common practice of using survival as a measure of entrepreneurial performance, we model both failure and cash-out (liquidity event) as conditioned by the same underlying process. High-opportunity-cost entrepreneurs prefer a shorter time to success, even if this also implies failing more quickly, whereas entrepreneurs with fewer outside alternatives will choose less aggressive strategies and, consequently, linger on longer. We formalize this intuition with a simple model. Using a novel data set of information security start-ups, we find that entrepreneurs with high opportunity costs are not only more likely to cash out more quickly but are also more likely to fail faster. Not only is survival a poor indicator of performance, but its use as one obscures the relationship between entrepreneurial characteristics, entrepreneurial strategies, and outcomes. This paper was accepted by David Hsu, entrepreneurship and innovation.

We examine how firms can create word-of-mouth peer influence and social contagion by designing viral features into their products and marketing campaigns. Word-of-mouth (WOM) is generally considered to be more effective at promoting product contagion when it is personalized and active. Unfortunately, the relative effectiveness of different viral features has not been quantified, nor has their effectiveness been definitively established, largely because of difficulties surrounding econometric identification of endogenous peer effects. We therefore designed a randomized field experiment on a popular social networking website to test the effectiveness of a range of viral messaging capabilities in creating peer influence and social contagion among the 1.4 million friends of 9,687 experimental users. Overall, we find that viral product design features can indeed generate econometrically identifiable peer influence and social contagion effects. More surprisingly, we find that passive-broadcast viral messaging generates a 246% increase in local peer influence and social contagion effects, while adding active-personalized viral messaging only generates an additional 98% increase in contagion. Although active-personalized messaging is more effective in encouraging adoption per message and is correlated with more user engagement and sustained product use, passive-broadcast messaging is used more often enough to eclipse those benefits, generating more total peer adoption in the network. In addition to estimating the effects of viral product design on social contagion and product diffusion, our work also provides a model for how randomized trials can be used to identify peer influence effects in networks.

We explore substitution patterns across advertising platforms. Using data on the advertising prices paid by lawyers for 139 Google search terms in 195 locations, we exploit a natural experiment in “ambulance-chaser” regulations across states. When lawyers cannot contact clients by mail, advertising prices per click for search engine advertisements are 5%–7% higher. Therefore, online advertising substitutes for offline advertising. This substitution toward online advertising is strongest in markets with fewer customers, suggesting that the relationship between the online and offline media is mediated by the marketers' need to target their communications., NET Institute

Companies and managers are apt to forget information, yet classic game theory analysis assumes that all players have perfect recall. This paper expands the literature by examining how introducing forgetfulness into a multiplayer game-theoretic framework can help or hinder cooperative behavior. We find that forgetfulness impacts the ability of firms to cooperate in countervailing directions. On one hand, forgetfulness can diminish the ability to punish deviators, making cooperation more difficult. On the other hand, under some conditions forgetfulness can make meting out severe punishments—even below-(stage) minimax punishments—credible and decrease the ability for players to effectively deviate, facilitating cooperation even in circumstances where cooperation cannot be sustained under perfect recall. We apply our model to a number of strategic games that commonly appear in the literature. This paper was accepted by Preyas Desai, marketing.

Due to copyright restrictions, the access to the full text of this article is only available via subscription. Websites typically provide several links on each page visited by a user. Whereas some of these links help users easily navigate the site, others are typically used to provide targeted recommendations based on the available user profile. When the user profile is not available (or is inadequate), the site cannot effectively target products, promotions, and advertisements. In those situations, the site can learn the profile of a user as the user traverses the site. Naturally, the faster the site can learn a user's profile, the sooner the site can benefit from personalization. We develop a technique that sites can use to learn the profile as quickly as possible. The technique identifies links for sites to make available that will lead to a more informative profile when the user chooses one of the offered links. Experiments conducted using our approach demonstrate that it enables learning the profiles markedly better after very few user interactions as compared to benchmark approaches. The approach effectively learns multiple attributes simultaneously, can learn well classes that have highly skewed priors, and remains quite effective even when the distribution of link profiles at a site is relatively homogeneous. The approach works particularly well when a user's traversal is influenced by the most recently visited pages on a site. Finally, we show that the approach is robust to noise in the estimates for the probability parameters needed for its implementation.

This paper studies two fundamentally distinct approaches to opening a technology platform and their different impacts on innovation. One approach is to grant access to a platform and thereby open up markets for complementary components around the platform. Another approach is to give up control over the platform itself. Using data on 21 handheld computing systems (1990–2004), I find that granting greater levels of access to independent hardware developer firms produces up to a fivefold acceleration in the rate of new handheld device development, depending on the precise degree of access and how this policy was implemented. Where operating system platform owners went further to give up control (beyond just granting access to their platforms) the incremental effect on new device development was still positive but an order of magnitude smaller. The evidence from the industry and theoretical arguments both suggest that distinct economic mechanisms were set in motion by these two approaches to opening.

We develop and test a model of migration and use of platforms to explain consumers' reactions to the newest generation of an information and communication technology platform. We draw from information systems and consumer behavior research on adoption and use of technologies, and adapt and incorporate the construct of complementarity from macrolevel research on platform leadership, network effects, and innovation ecosystems. We conceptualize complementarities between the hardware and software platforms, software platform and applications, and applications and services. The complementarities are theorized to influence migration intention, with current generation of the consumer's platform being a key moderator. We empirically validated our model with data collected using two waves of surveys from 4,412 consumers (2,333 consumers in the second wave) before and after the introduction of the third generation (3G) mobile data services platform in Hong Kong. We explained 60% of the variance in migration intention that in turn was strongly correlated with migration to and use of 3G. ; Department of Management and Marketing

Increasing globalization has created tremendous opportunities and challenges for organizations and societies. Consequently, a broad range of information technologies to better support the collaboration of diverse, and increasingly distributed, sets of participants is ever more utilized. Arguably, the success of such technology-mediated collaboration is dependent upon the quality of each individual's contributions; however, although individuals' motivations to do their best could be significantly influenced by the design of a system's human–computer interface, this area has received little attention within the context of group collaboration environments. We fill this gap by integrating research from human–computer interaction, motivation, and technology-supported group work to theoretically derive mechanisms for increasing each individual's motivation within a collective setting. Specifically, we manipulate the interface of a computer-mediated idea generation system (a widely used collaboration tool) to enhance the system's motivational affordance, i.e., the system's properties that fulfill users' motivational needs. Results from two studies demonstrate that by embedding the theoretically derived mechanisms “providing feedback” and “designing for optimal challenge” into the collaboration environment, significant performance gains were realized. The results suggest that even slight manipulations of the human–computer interface can contribute significantly to the successful design of a wide variety of group collaboration environments.

This study investigates the impact of information technology (IT) on productivity and collaboration patterns in academe. Our data combine information on the diffusion of two noteworthy innovations in IT—BITNET and the Domain Name System (DNS)—with career-history data on research-active life scientists. We analyzed a random sample of 3,114 research-active life scientists from 314 U.S. institutions over a 25-year period and find that the availability of BITNET on a scientist's campus has a positive effect on his or her productivity and collaborative network. Our findings also support the hypothesis of a differential effect of IT across subgroups of the scientific labor force. Women scientists and those working at nonelite institutions benefit more from the availability of IT in terms of overall research output and an increase in the number of new coauthors they work with than do men or individuals at elite institutions. These results suggest that IT is an equalizing force, providing a greater boost to productivity and more collaboration opportunities for scientists who are more marginally positioned in academe.

It has become widely accepted that information technology (IT) has had a profound influence on market transactions, with lower search costs for buyers often considered the key to lower prices and higher consumer welfare. However, sellers also use online channels to search for buyers whose product preferences and valuations match the sellers' offerings, and limited research has examined the impact of IT on sellers' search strategies or associated market outcomes. In this study, we investigate how market characteristics, the length of time the seller searches the auction marketplace for a buyer, and seller search in other websites influence the final sale price in online auctions. The online auction market for used vehicles provides a valuable opportunity to observe search processes of sellers, as the unique vehicle identification number associated with each vehicle enables the tracking of an individual item across both subsequent auctions and across other websites. We find that the market characteristics, duration of search, and search in other websites are each associated with a higher final sale price. Our findings highlight the importance of examining both buyer and seller search behaviors to further our understanding of the impacts of IT on market outcomes and efficiency.

We use a social contagion lens to study the dynamic, temporal process of the diffusion of electronic medical records in the population of U.S. hospitals. Social contagion acknowledges the mutual influence among organizations within an institutional field and implicates information transmission through direct contact and observation as the mechanisms underlying influence transfer. We propose hypotheses predicting a hospital's likelihood of adopting electronic medical records as a function of its susceptibility to the influence of prior adopters, the infectiousness or potency of influence exerted by adopting hospitals, and its social and spatial proximity to prior adopters. Results obtained by fitting a heterogeneous diffusion model to data from a sample drawn from an annual survey, spanning 1975 to 2005, of almost 4,000 U.S. hospitals suggest that diffusion can be accelerated if specific attention is given to increasing social contagion effects. In particular, with respect to susceptibility to influence, greater hospital size and age are positively related to the likelihood of adoption for nonadopters, whereas younger hospitals are associated with greater infectiousness for adopters. A hospital's “celebrity” status also contributes to its infectiousness. We further find strong effects for social proximity and significant regional effects for spatial proximity and hospital size, suggesting that geographical covariates should be included in diffusion studies. Results also reinforce the importance of theorizing about and including interactions in examinations of social contagion.

The importance of material flow management for a profit-maximizing firm has been well articulated in the supply chain literature. We demonstrate in our analytical model that a firm must also actively manage information flows within the supply chain, which translates to controlling what it knows, as well as what its competitors and suppliers know. In our model of horizontal competition between an informed and an uninformed firm with a common upstream supplier, material and information flows intersect through leakage of demand (order) information to unintended recipients. As a result, the informed firm's drive to control information flows within the supply chain can trigger operational losses through material flow distortion. These losses can be so severe that the firm may prefer not to acquire information even when it is costless to do so. Our results underscore the importance of strategic information management—actively managing the supply chain's information flows, and making trade-offs with material flows where appropriate, to maximize profits.

Patch management is a crucial component of information security management. An important problem within this context from a vendor's perspective is to determine how to release patches to fix vulnerabilities in its software. From a firm's perspective, the issue is how to update vulnerable systems with available patches. In this paper, we develop a game-theoretic model to study the strategic interaction between a vendor and a firm in balancing the costs and benefits of patch management. Our objective is to examine the consequences of time-driven release and update policies. We first study a centralized system in a benchmark scenario to find the socially optimal time-driven patch management. We show that the social loss is minimized when patch-release and update cycles are synchronized. Next, we consider a decentralized system in which the vendor determines its patch-release policy and the firm selects its patch-update policy in a Stackelberg framework, assuming that release and update policies are either time driven or event driven. We develop a sufficient condition that guarantees that a time-driven release by the vendor and a time-driven update by the firm is the equilibrium outcome for patch management. However, in this equilibrium, the patch-update cycle of the firm may not be synchronized with the patch-release cycle of the vendor, making it impossible to achieve the socially optimal patch management in the decentralized system. Therefore, we next examine cost sharing and liability as possible coordination mechanisms. Our analysis shows that cost sharing itself may achieve synchronization and social optimality. However, liability by itself cannot achieve social optimality unless patch-release and update cycles are already synchronized without introducing any liability. Our results also demonstrate that cost sharing and liability neither complement nor substitute each other. Finally, we show that an incentive-compatible contract on cost sharing can be designed to achieve coordination in case of information asymmetry.