Hypercompetitive consumer software markets pit incumbents against free alternatives and pirates. Although the extant literature has studied firm level strategic responses to consumer heterogeneity and piracy, there is a lack of understanding of consumer reactions to digital goods choice sets that include firm product extensions such as the introduction of premium or free alternatives. With context-dependent preferences as the theoretical basis, this study systematically examines the impact of piracy controls and product line extensions on welfare in a consumer software market context (i.e., willingness to pay (WTP) and changes in consumer and producer surplus). In two controlled experiments using double-bound-dichotomous-choice WTP elicitation, we investigate how piracy controls and product line extensions impact two different platforms of the same software (PC Adobe applications and mobile Adobe applications) in terms of propensity to pirate and WTP. We show that introducing a premium or free vertical extension has different impacts on consumers' WTP for the focal product depending on whether it is a low-cost or high-cost market even when controlling for individual differences, such as price fairness perceptions, product feature value, brand perceptions, etc. By contrast, piracy controls reduce piracy rates but have a limited impact on consumer WTP for the focal product in both contexts. By calculating the overall welfare of the market, we show that there is alignment in consumer and producer interests at current and estimated optimal price levels in both high-cost and low-cost markets. However, the introduction of a free product extension leads to a higher surplus in the high-cost market, whereas the introduction of the premium product extension leads to a higher surplus in the low-cost market.
Mobile applications markets with app stores have introduced a new approach to define and sell software applications with access to a large body of heterogeneous consumer population. This research examines key seller- and app-level characteristics that impact success in an app store market. We tracked individual apps and their presence in the top-grossing 300 chart in Apple’s App Store and examined how factors at different levels affect the apps’ survival in the top 300 chart. We used a generalized hierarchical modeling approach to measure sales performance, and confirmed the results with the use of a hazard model and a count regression model. We find that broadening app offerings across multiple categories is a key determinant that contributes to a higher probability of survival in the top charts. App-level attributes such as free app offers, high initial ranks, investment in less-popular (less-competitive) categories, continuous quality updates, and high-volume and high-user review scores have positive effects on apps’ sustainability. In general, each diversification decision across a category results in an approximately 15 percent increase in the presence of an app in the top charts. Survival rates for free apps are up to two times more than that for paid apps. Quality (feature) updates to apps can contribute up to a threefold improvement in survival rate as well. A key implication of the results of this study is that sellers must utilize the natural segmentation in consumer tastes offered by the different categories to improve sales performance.
Information technology (IT) infrastructure outsourcing arrangements involve multiple services and processes that are interdependent. The interdependencies pose significant challenges in designing appropriate incentives to influence a provider's effort-allocation decisions. By integrating process modeling fundamentals with multitask agency theory, we enumerate the base set of possible interrelationships among different IT service processes and derive corresponding optimal incentives. Our results demonstrate the impacts of risk profile, random noise, value-cost ratio, and process structure on optimal incentive rates. We find that the current practice of treating IT services as essentially independent is optimal only in limited settings where both the service provider and customer are risk neutral. Interestingly, incongruent performance measures require optimal incentive rates to respond in complex ways to the strength of coupling between services and the complementarity and substitutability of services. We also analyze more complex process scenarios using different combinations of the base set. The results demonstrate that, while the findings from the base set largely hold, the value-cost ratio of the services and the performance measure congruity can pose unique challenges in determining incentive rates.
Web-based portals extend many convenient and collaborative capabilities to consumers and are being adopted by small firms with ever greater frequency, especially in the context of health care. The early adoption of patient portals by ambulatory-care clinics (outpatient health providers) presents a unique opportunity to more fully understand the characteristics of supply-side adopters in a context where firms (ambulatory-care clinics) are extending digital services to consumers (patients). Using diffusion of innovations literature and contingency theory as the theoretical base, we expand upon the firm characteristics traditionally considered to be predictors of adoption (e.g., firm size, slack resources, competition, capabilities, and management support) and examine how demand contingencies, service contingencies, and learning externality contingencies affect patient portal adoption by ambulatory-care clinics in the United States. We find that early adopters often have a structure in place that provides support for innovations (e.g., part of integrated delivery systems), as would be predicted by diffusion of innovation theory. We also find, though, that service contingencies associated with continuity of care, learning externality contingencies associated with local influences, and select demand contingencies associated with the local market significantly influence patient portal adoption decisions. Our findings suggest that the adoption and diffusion of patient portals may be affected by more than traditionally considered "dominant" firm characteristics and provide insights into how such customer-facing systems may be affected by contingent factors.
In an information technology services outsourcing arrangement, variance in demand volume and individual user preferences pose significant challenges to the provider organization in making resource allocation decisions. Such variations affect service levels, especially under fixed resource constraints. We explore the possible role of periodic demand information sharing and subsequent resource-level adjustments as a means of addressing issues arising from demand variation. As information exchange alters the dynamics of the relationship between the customer and provider organizations, incorporating information sharing in service-level agreements requires modifying current pricing schemes. A pricing heuristic is developed and tested under varying levels of information accuracy and granularity. The heuristic is shown to provide better economic welfare for both participants in comparison to the baseline pricing strategies considered. Also, it is shown that information, even at a coarse level of granularity, is very effective in providing stable service levels--a finding that is encouraging for enhanced collaborations between customer and provider organizations in outsourcing arrangements.
An introduction is presented for this issue which includes articles about information security in a digital economy, research methodology evaluation, and computer security.
Competition from open source software and free software (OSS/FS) alternatives is causing proprietary software producers to reevaluate product strategies. OSS/FS alternatives complicate an already complex information goods market plagued by piracy concerns. Although producer perspectives on software pricing and piracy controls have been addressed extensively, consumers' perspective and willingness to pay for commercial software is not very well understood. This paper empirically determines willingness to pay for a leading commercial software application (Microsoft Office) in the presence of an OSS/FS alternative. A contingent valuation approach is used to elicit willingness to pay for the application. The research design employs a 2 × 2 × 2 experiment to investigate the impact of preventive control, deterrence control, and OSS/FS alternative. The results indicate that the availability of an OSS/FS alternative has little impact on willingness to pay for Microsoft Office. However, piracy controls significantly increase willingness to pay for Microsoft Office, even in the presence of OSS/FS alternatives.
A key feature of service-oriented models of information technology is the promise of prespecified quality levels enforceable via service level agreements (SLAs). This poses difficult management problems when considerable variability exists in user preferences and service demand within any organization. Because variance in expectations impact service levels, effective pricing and resource allocation mechanisms are needed to deliver services at the promised quality level. In this paper, we propose a mechanism for SLA formulation that is responsive to demand fluctuations and user preference variance, with the objective of maximizing organizational welfare of the participants. This formulation features a dynamic priority based price-penalty scheme targeted to individual users. An analytical model is presented and evaluated for effectiveness of a proposed dynamic priority-based pricing scheme vis-à-vis a baseline fixed-price single-quality level SLA. Simulations using data from an existing SLA is used to provide evidence that the proposed dynamic pricing scheme is likely to be more effective than a fixed-price approach from a system welfare perspective.
This paper presents an approach to organizational modeling that combines both agent-centric and activity-centric approaches. Activity-centric approaches to process modeling capture the mechanistic components of a process (including aspects of work flow, decision, and information), but agent-centric approaches capture specific aspects of the human component. In this paper, we explore an integrative viewpoint in which the transactional aspects of agent-centric concerns--for example, economic incentives for agents to perform--are integrated with decision and informational aspects of a process. To illustrate issues in this approach, we focus on modeling incentive mechanisms in a specific sales process and present results from an extensive simulation experiment. Our results highlight the importance of considering the effects of incentives when decision and informational aspects of a process undergo changes.
This paper investigates a problem of resource allocation, where a manager allocates discrete resources among multiple agents in a team in a socially optimal manner. In making this allocation, the manager needs to understand the preference orders of the agents for the discrete resources. The manager does this by adopting an information acquisition policy. Three different information acquisition policies are investigated here. The trade off between the amount of information elicited and the costs involved are studied for each of the policies.