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Merage School CIWM Social Impact Investing

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Social Impact Investing: Strategies and Implications for the Future.

Information Systems

 

Professor Vidyanand Choudhary
Title: “Targeted Couponing in Online Auctions”
Co-authors: Shivendu Shivendu
Accepted at:
Information Systems Research
July 2016

In order to study the role of targeted couponing in auctions, we develop a stylized model in which bidders have heterogeneous valuations and participation costs wherein their entry probabilities are endogenous. Couponing impacts the seller’s profit in two ways: (i) impact on bidders’ entry probability including negative externalities for the bidder who does not receive a coupon and (ii) value extraction. We find that targeting a coupon to the low-valuation bidder can be optimal for the firm even if it leads to a reduction in the joint entry probability of the two bidders because of the benefit from value extraction. A novel result is that in the context of auctions it can be optimal for the seller to issue targeted coupons to the high-valuation bidder. We also find that an increase in the bidders’ valuation or reduction in the participation cost can lead to lower profit for the seller. This result is driven by the non-monotonicity of the joint entry probability of the two bidders and the seller profits being non-monotone functions of bidders’ valuations and participation costs.

  


 

Professor Vijay Gurbaxani
Title: “Information Technology Outsourcing: Asset Transfer and the Role of Contract”
Co-authors: Young Bong Chang and Kiron Ravindran (PhD Alumni)
Accepted at:
MIS Quarterly
July 2016

Information Technology Outsourcing (ITO) is the predominant mode of acquiring information systems services, providing clear evidence that the economics of service delivery favor external service providers over in-house information systems departments. An interesting feature of many large ITO arrangements is that the production assets necessary for service delivery are transferred to the vendor. The argument in favor of such asset transfers, based in Property Rights Theory, is that they are necessary to incentivize vendors to continue to invest in the transaction-specific assets to improve service. On the other hand, Transaction Cost Economics predicts that transferring such assets increases bilateral dependence and will elevate the risk of post-contractual opportunistic behavior. The contracting challenge in this context is to specify the terms of exchange to achieve the client’s objectives for outsourcing while managing the risks of asset transfer. We develop a theoretical framework to derive propositions on contract design in the presence of asset transfer. We identify the importance of contractual clauses that mitigate the associated risks and the complementary role of compensation mechanisms, specifically the pricing scheme and IT-related performance incentives. We have compiled a unique dataset that allows us to test our propositions by comparing ITO contracts that include asset transfer to those that do not. We find that asset transfer does significantly affect contract design, manifested in the inclusion of clauses that protect both clients and vendors. Outsourcing objectives are more likely to be met when contracts include compensation mechanisms that complement asset transfer.

  


 

Professor Vidyanand Choudhary
Title: “Designing Promotion Ladders to Mitigate Turnover of IT Professionals”
Co-authors: F. MacCrory and A. Pinsonneault (Ph.D. Alumni)
Accepted at:
Information Systems Research
April 2016

Chronic excessive turnover among IT professionals has been costly to firms for decades with annual turnover rates as high as 24% even among Computerworld’s “100 Best Places to Work in IT.” Prior IS literature has identified two key factors affecting turnover: boundary-spanning roles and low promotability in one’s current firm.  We draw on tournament theory, which is primarily concerned with inducing effort in employees, to decompose promotability into two distinct constructs: the likelihood of promotion and benefit from promotion, and demonstrate that each has a distinct role in affecting turnover rates.  Our key result is that a job ladder motivating IT professionals with large, infrequent promotions will lead to higher turnover than a job ladder with smaller, more frequent promotions. We describe the conditions under which rearranging the job ladder creates economic value for the firm.  We also offer an explanation for the observation that jobs characterized by boundary-spanning activities have higher turnover, and show that such jobs are more sensitive to the effect of likelihood of promotion on turnover.  We test our hypotheses on a detailed dataset covering 5704 IT professionals over a five year period. We confirm that likelihood of promotion has the predicted effects on turnover of IT professionals.  A one-standard-deviation increase in likelihood of promotion decreases turnover by over 99%, consistent with our prediction.  The empirical analysis also confirms the predicted effects of boundary spanning activities.

  


 

Professor Sanjeev Dewan
Title: “What Explains the Variation? Industry-Level Analysis of Information Technology Risk and Return”
Co-authors:  Fei Ren (PhD alumna)
Accepted at: Journal of Management Information Systems  
June 2015

Motivated by the wide dispersion in IT returns across industries, researchers conducted an industry- level examination of IT return and risk, focusing on the moderating roles of industry competition, regulation and technological change. They addressed the following research questions: What is the impact of IT investment on the return and risk dimensions of industry financial performance? How do industry characteristics moderate the relationship between IT investment and industry performance? Their analysis of these questions finds that higher levels of industry competition are associated with higher IT productivity (contribution of IT to value-added output), lower IT profitability (contribution of IT to industry average ROA), and higher IT risk (contribution of IT to ex ante variability of ROA). This is consistent with the notion that competition induces riskier IT investments, despite the fact that competition may evaporate returns. Higher levels of industry regulation are associated with lower IT returns in both productivity and profitability, but also with lower IT risk. Finally, a higher rate of technological change induces both higher IT returns and higher IT risk. A variety of tests indicate that our results are robust and together, they shed light on factors that drive variation in IT performance across industries, and provide useful industry-level performance benchmarks of the return and risk impacts of IT investments.
  


 

Professor Vijay Gurbaxani
Title: “Social Capital and Contract Duration in Buyer-Supplier Networks for Information Technology Outsourcing”
Co-authors:  Kiron Ravindran (Ph.D. Alumnus), Anjana Susarla, and Deepa Mani
Accepted at: Information Systems Research  
January 2015

This paper presents new evidence on the role of embeddedness in predicting contract duration in the context of Information Technology (IT) Outsourcing. Contract duration is a strategic decision that aligns interests of clients and vendors, providing the benefits of business continuity to clients and incentives to undertake relationship specific investments for vendors. Considering the salience of this phenomenon, there has been limited empirical scrutiny into how contract duration is awarded. These researchers posit that clients and vendors obtain two benefits from being embedded in an inter-organizational network. First, the learning and experience accumulated from being embedded in client-vendor network could mitigate the challenges in managing longer-term contracts. Second, the network serves as a reputation system that can stratify vendors according to their trustworthiness and reliability, which is important in longer-term arrangements. In particular, the researchers attempt to make a substantive contribution in theorizing about embeddedness at four distinct levels: structural embeddedness at the node level, relational embeddedness at the dyad level, contractual embeddedness at the level of a neighborhood of contracts and finally, positional embeddedness at the level of the entire network. They analyzed a dataset of 22039 outsourcing contracts implemented between 1989 and 2008. They found that contract duration is indeed associated with structural and positional embeddedness of participant firms, with the relational embeddedness of the buyer-seller dyad and with the duration of other contracts to which it is connected through common firms. Given the nature of their data, identification using traditional OLS based approaches is difficult given the unobserved errors being clustered along two non-nested dimensions and the autocorrelation in a firm’s decision (here the contract) with those of contracts in its reference group. They employed a multi-way cluster robust estimation and a network auto-regressive estimation to address these issues. Implications for literature and practice are discussed.
  


 

Professor Vidyanand Choudhary
Title: “Impact of Cloud Computing: Should the IT Department be Organized as a Cost-Center or a Profit-Center?”
Co-author: Joseph Vithayathil, Ph.D. Student
Accepted at:
Journal of Management Information Systems
June 2013

 

How does the adoption of cloud computing by a firm impact the organizational structure of its IT department?  To analyze this question we consider an IT department that procures IT services from a cloud computing vendor and enhances these services for consuming units within the firm. The model incorporates the competitive environment faced by the cloud vendor, which affects the price and quality of the cloud vendor. We find that when the cloud vendor faces intense competition, the cost-center model is preferred over the profit-center model. Infrastructure services such as basic storage, email or raw computing face intense competition and our results suggest that such services be offered as a free corporate resource under the cost-center. When the cloud vendor has pricing power, a profit-center organizational structure is likely to be preferred. Our results suggest that highly differentiated services such as cloud-based enterprise ERP or Business Intelligence (BI) be offered under the profit-center structure. Additionally, the profit-center structure provides greater internal quality enhancement to cloud-based IT services than the cost-center.

  


 

Professor Sanjeev Dewan
Title: “Social Media, Traditional Media, and Music Sales”
Co-author: Jui Ramaprasad (PhD alumnae)
Accepted at:
Management Information Systems Quarterly
January 2013

 

Motivated by the growing importance of social media, this paper examines the relationship between new media, old media, and sales, in the context of the music industry. In particular, we study the interplay between blog buzz, radio play and music sales, at both the album and song levels of analysis. We employ the Panel Vector Auto-regression (PVAR) methodology, an extension of vector auto-regression to panel data. We find that radio play is consistently and positively related to future sales at both the song and album levels. Blog buzz, however, is not related to album sales and negatively related to song sales, suggesting that sales displacement due to free online sampling dominates any positive word-of-mouth effects of song buzz on sales. Further, the negative relationship between song buzz and sales is stronger for niche music relative to mainstream music, and for less popular songs within albums. We discuss the implications of these results for both research and practice regarding the role of new media in the music industry.

  


 

Professor Vijay Gurbaxani
Title: “IT Outsourcing, Knowledge Transfer and Firm Productivity: An Empirical Analysis”
Co-author: Young Bong Chang
Published in:
MIS Quarterly
December 2012

Firms are increasingly sourcing internal IS functions from external service providers. However, there is limited empirical evidence of the economic impact of this delivery option, and more specifically, of the productivity gains accruing to firms that have outsourced. Moreover, there is little evidence of the role and contributions of the individual mechanisms by which service providers create value for client firms. We are particularly interested in whether client firms benefit from the accumulated knowledge held by IT service firms. In this paper, we examine the impact of IT outsourcing on the productivity of firms that choose this mode of services delivery focusing on the role of IT-related knowledge. Since firms self-select into their optimal sourcing mode, we use a variety of econometric techniques including propensity score-based matching and switching regression to control for potential bias arising from endogenously determined sourcing modes. We demonstrate that IT outsourcing does lead to productivity gains for firms that select this mode of service delivery. Our results also suggest that IT-related knowledge held by IT services vendors enables these productivity gains, the magnitude of which is moderated by a firm’s IT intensity. Moreover, the value of outsourcing to client firms varies with their propensity for outsourcing. In general, firms that are more likely to outsource receive greater benefits from IT outsourcing. Our analyses also show that firms that outsource have been able to achieve additional productivity gains from contracting out compared with their counterfactuals.

  


 

Professor Vijay Gurbaxani
Title: “The Impact of IT-Related Spillovers on Long-Run Productivity: An Empirical Analysis”
Co-authors: Young Bong Chang (Ph.D. Alumnus)
Published in:
Information Systems Research
September 2012

This paper examines the effects of IT-related spillovers on firm-level productivity improvements over a long-term horizon. In contrast, prior research has largely focused on the direct and contemporaneous impacts of IT investments. As a result, we do not fully understand how IT investments are associated with ongoing productivity improvements in future periods and how spillovers influence these gains. In this paper, we examine whether firms receive incremental benefits from IT-related spillovers, and whether these spillovers lead to more persistent returns. We focus on the spillovers that accrue to firms from their inter-industry transactions, especially the IT services industry. We model and estimate the impact of spillovers on long-run productivity using firm-level data from the manufacturing, transportation, trade and services sectors. We find that spillover impacts are highly significant but that the magnitude and persistence of the impacts vary. Firms with high IT intensity receive spillover benefits from the IT services industry that are sustained over a long-term horizon. However, the impact of IT-related spillovers does not persist in low IT intensity firms regardless of the source. Overall, our results shed light on the existence and sources of IT-related spillovers and on their important role in shaping the long-run returns to IT investment. Our results also help explain the findings of excess returns to IT investment in the IT productivity literature.

  


 

Professors Vijay Gurbaxani and David Fitoussi
Title: “IT Outsourcing Contracts and Performance Measurement”
Published in:
Information Systems Research
March 2012

Companies that outsource IT services usually focus on achieving multiple objectives and outsourcing contracts typically specify a variety of metrics to measure and reward (or penalize) vendor performance. The specific types of performance metrics included in a contract strongly affect its incentive content and ultimately its outcome. One specific challenge is the measurement of performance when an outsourcing arrangement has a mix of objectives, some that are highly measurable and others that are not. Recent advances in contract theory suggest that the design of incentives for a given objective is affected by the characteristics of other objectives. However, there is little empirical work that demonstrates how relevant these “multitask” concerns are in real-world contracts. We apply contract theory to examine how objectives and incentives are related in IT outsourcing contracts that include multiple objectives with varying measurement costs. In our context, contracts generally share the objective of reducing IT costs but vary in the importance of increasing IT quality. We establish empirical results about performance measurement in IT outsourcing contracts that are consistent with recent theoretical propositions. We find that the use of strong direct incentives for a given measurable objective is negatively correlated with the presence of less-measurable objectives in the contract. We show that outsourcing contracts that emphasize goals with high measurement costs employ more performance metrics than initiatives whose objectives have a lower measurement-cost profile. Surprisingly, as the number of performance metrics increase, satisfactory outcomes decrease, which we explain within a multi-task theory framework. Overall, our results provide empirical support for multi-task principal-agent theory and important guidance in designing outsourcing contracts for complex IT services.

  


 

Professor Vijay Gurbaxani
Title: “An Empirical Analysis of Technical Efficiency: The Role of IT Intensity and Competition”
Co-author: Young Bong Chang (PhD alumnus)
Accepted at:
Information Systems Research
October 2011

We analyze the impact of IT on the technical efficiency of firms in the context of their observed competitive settings. In contrast, most prior studies on the economic effects of IT focus on its productivity impacts while assuming perfect competition. Since competition can be a driver of efficiency and industries display varying degrees of competitiveness, firm-level efficiency is likely to display considerable heterogeneity.  However, most productivity studies do not allow for this potential heterogeneity in firm-level efficiency. To shed light on these questions, we analyze the economic impact of IT on technical efficiency, a key component of efficiency, in heterogeneous competitive settings. Our study employs a number of econometric techniques, including a stochastic frontier and a generalized method of moment approach, using data from firms in a wide cross-section of industries.  We find, after controlling for firm-level heterogeneity and potential endogeneity, that IT is positively associated with gains in technical efficiency but its impact is moderated by the degree of competition.  Moreover, firms display large variations in their levels of technical efficiency partly due to the heterogeneous market competitiveness conditions that they operate in. In more competitive industries, firms tend to deploy IT more intensively and use it more efficiently. Overall, our results demonstrate that IT and competition are significant determinants of gains in technical efficiency, and provides insight into how competition affects the returns to IT investment.

  


 

Professor Sanjeev Dewan
Title: “Music Blogging, Online Sampling, and the Long Tail”
Co-author: Jui Ramaprasad (PhD alumnae)
Accepted at:
Information Systems Research
October 2011

Online social media such as blogs are transforming how consumers make consumption decisions, and the music industry is at the forefront of this revolution. Based on data from a leading music blog aggregator, we analyze the relationship between music blogging and full-track sampling, drawing on theories of online social interaction. Our results suggest that intensity of music sampling is positively associated with the popularity of a blog among previous consumers, and that this association is stronger in the tail than in the body of music sales distribution. At the same time, the incremental effect of music popularity on sampling is also stronger in the tail relative to the body. In the last part of the paper we discuss the implications of our results for music sales and potential long-tailing of music sampling and sales. Put together, our analysis sheds new light on how social media are reshaping music sharing and consumption.

  


 

Professor Ken Kraemer
Title: “Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod”
Co-authors: Greg Linden and Jason Dedrick
Accepted at:
Journal of International Commerce and Economics
June 2011

Globalization skeptics argue that the benefits of globalization, such as lower consumer prices, are outweighed by job losses, lower earnings for U.S. workers, and a potential loss of technology to foreign rivals. To shed light on the jobs issue, we analyze the iPod, which is manufactured offshore using mostly foreign-made components. In terms of headcount, we estimate that, in 2006, the iPod supported nearly twice as many jobs offshore as in the United States. Yet the total wages paid in the United States amounted to more than twice as much as those paid overseas. Driving this result is the fact that Apple keeps most of its research and development (R&D) and corporate support functions in the United States, providing thousands of high-paid professional and engineering jobs that can be attributed to the success of the iPod. This case provides evidence that innovation by a U.S. company at the head of a global value chain can benefit both the company and U.S. workers.

  


 

Professor Kenneth Kraemer
Title: "Who captures value in the Apple iPad?"
Co-authors: Greg Linden, University of California, Berkeley; Jason Dedrick, Syracus University

March 2011

Since our earlier analyses of Apple's iPod value chain (Dedrick et al., 2010; Linden et al., 2009), we are often asked what has changed as Apple has turned its attention to cell phones and tablet computers. The answer is “not much”. Like the iPod and iPhone before it, the iPad is a big money maker for Apple, which keeps about 25% of the sales price of a $499 model (much more if the iPad is sold through Apple’s retail outlets or online store). The next biggest beneficiaries are Korean companies such as LG and Samsung, who provide the display and memory chips, and whose gross margins account for 7% of the retail price.1 U.S., Japanese and Taiwanese suppliers capture 1-2% each. But overall, the story remains the same, with Apple’s success benefiting its shareholders, workers, and the U.S. more generally.

What about China, where the iPad is assembled? There are no Chinese suppliers to the iPad, so the only benefit to China is in wages paid for manufacturing. Perhaps half of the $50 in total direct labor that goes into an iPad is paid in China. So while each iPad sold in the U.S. adds about $250 to the U.S.-China trade deficit (the factory cost of an iPad), the value captured by China is at most about one-tenth that amount, and probably less.

Compared with our original analysis of the iPod value chain, the share of value captured by Korean suppliers has surpassed that for Japanese firms. We believe China's share of value capture has probably increased as well, but because of the inadequate data collected by trade and other statistical agencies, we are left with educated guesses on that issue.

References:
Dedrick, J., Kraemer, K.L., Linden, G. (2010) “Who profits from innovation in global value chains? A study of the iPod

     and notebook PCs.” Industrial and Corporate Change 19(1), 81-116.


Linden, G., Kraemer, K.L., Dedrick, J. (2009). “Who captures value in a global innovation network? The case of

     Apple's iPod.” Communications of the ACM, 52(3), 140-144.


Rassweiler, A. (2010). “User-Interface-Focused iPad Changes the Game in Electronic Design, iSuppli Teardown

     Reveals.” http://www.isuppli.com/Teardowns/News/Pages/User-Interface-Focused-iPad-

     Changes-the-Game-in-Electronic-Design-iSuppli-Teardown-Reveals.aspx

  


 

Professor Shivendu Shivendu
Title: “Mechanism Design for “Free” but “No Free Disposal” Services: The Economics of Personalization under Privacy Concerns”
Co-authors: Ramnath Chellappa
Accepted at:
Management Science
July 2010

Online personalization services belong to a class of economic goods with a “no free disposal” (NFD) property where consumers do not always prefer more services to less because of the privacy concerns. These concerns arise from the revelation of information necessary for the provision of personalization services. We examine vendor strategies in a market where consumers have heterogeneous concerns about privacy. In successive generalizations, we allow the vendor to offer a fixed level of personalization, variable levels of personalization, and monetary transfers (coupons) to the consumers that depend on the level of personalization chosen. We show that a vendor offering a fixed level of personalization does not offer a coupon unless his marginal value of information (MVI) is sufficiently high, and even when personalization is costless, the vendor does not cover the market. Under a fixed services offering, the vendor serves the same market with or without couponing. Next, we demonstrate that in the absence of couponing, the vendor’s optimal variable personalization services contract maximizes surplus for all heterogeneous consumers, which is in contrast to standard results from monopolistic screening. When the vendor can offer coupons that vary according to personalization levels, the optimal contract is not fully revealing unless his MVI is high and he will not offer coupons when this MVI is low. However, a vendor with a moderate MVI (between certain thresholds) offers a bunched contract, wherein, consumers with low privacy concerns receive a variable services-coupon contract, those with moderate privacy concerns receive a fixed services-coupon contract, and those with high privacy concerns do not participate in the market. The coupon value is decreasing in privacy sensitivity of consumers.

  


 

Professor Sanjeev Dewan
Title: “Information Technology and Firm Boundaries: Impact on Firm Risk and Return Performance.”
Co-authors: Fei Ren (former Ph.D. student)
Accepted at:
Information Systems Research

September 2009

In this paper, we empirically investigate the impact of information technology (IT) investment on firm return and risk financial performance, emphasizing the moderating role of the firm boundary strategies of diversification and vertical integration. While the direct effect of IT capital is to increase firm risk for a given level of return, we find that suitable boundary strategies can moderate the impact of IT on firm performance in a way that increases return and decreases risk, at the margin. This moderation effect is strongest in service firms, in firms with high levels of IT investment intensity, and in more recent time periods. These results provide new insights into how IT and firm boundary strategies interact to affect the risk and return performance of firms.

  


 

Professor Ken Kraemer
Title: “Who Captures Value in a Global Innovation Network? The Case of Apple’s iPod.”
Co-authors: Greg Linden and Jason Dedrick
Accepted at:
Communications of the ACM

September 2009

Innovation is often touted as a key driver of economic growth, but when firms operate within production and innovation networks that span national and firm boundaries, the question arises as to who actually benefits from innovation.  Is it the home country of the innovating firm, the country where the innovative product is manufactured, or the countries that supply the key high value components? To unravel that question, we move away from macroeconomics and down to a micro-level analysis of one well-known innovative product, the Apple iPod. The iPod is designed and marketed by an American company, assembled by Taiwanese manufacturers in China, and includes key parts from Japanese, Korean and U.S. suppliers.  So who captures the value generated by this hugely successful innovation?  This paper develops a framework for analysis based on financial measures of value capture, and uses that framework to study one iPod model to provide one perspective on these questions.

  


 

Professor Ken Kraemer
Title: “One Laptop Per Child: Vision vs. Reality”
Co-authors: Jason Dedrick and Prakul Sharma
Accepted at:
Communications of the ACM

September 2009

In January 2005, at the World Economic Forum in Davos, Switzerland, Nicholas Negroponte unveiled the idea of One Laptop Per Child (OLPC), a $100 PC that would transform education for the world's disadvantaged school children by providing the means for them to teach themselves and each other. Negroponte estimated there could be 100-150 million of these laptops shipped every year by the end of 2007 (BBC News, 2005), but as of January 2009, only a few hundred thousand laptops had been distributed and OLPC had scaled down its ambitions dramatically. This paper analyzes the OLPC experience, focusing on (1) the successes and failures of OLPC in understanding and adapting to the developing country environment, and (2) the unexpectedly aggressive reaction by the PC industry, including the industry’s superpowers Intel and Microsoft, to defeat or co-opt the OLPC effort. We find that OLPC created a novel technology, the XO laptop, developed with close attention to the needs of students in poor rural areas. Yet it failed to anticipate the social and institutional problems that would arise in trying to diffuse that innovation in the developing country context. In addition, OLPC has been stymied by underestimating the aggressive reaction of the PC industry to the perceived threat of a $100 laptop being widely distributed in places that the industry sees as emerging markets for its own products. 

  


 

Professor Ken Kraemer
Title: “Who profits from innovation in global value chains? A study of iPods and notebook PCs.”
Co-authors: Jason Dedrick and Greg Linden
Accepted at:
Industrial and Corporate Change

September 2009

This article analyzes the distribution of financial value from innovation in the global supply chains of iPods and notebook computers. We find that Apple has captured a great deal of value from the innovation embodied in the iPod, while notebook makers capture a more modest share of the value from PC innovation. In order to understand these differences, we employ concepts from theories of innovation and industrial organization, finding significant roles for industry evolution, complementary assets, appropriability, system integration, and bargaining power.

  


 

Professor Vidyanand Choudhary
Title: “Use of Pricing Schemes for Differentiating Information Goods”
Accepted at:
Information Systems Research 

November 2008
 
When undifferentiated firms sell commoditized products in a friction-free market with fully informed buyers, the equilibrium price falls to unit cost and the sellers do not earn any profit. This well-known result from Economics is known as the Bertrand equilibrium. Prior research has established that the Bertrand equilibrium may not hold under some conditions. In this paper, I show that under conditions that are expected to yield the Bertrand equilibrium, firms may be able to earn large (monopoly) profits. This can occur when buyers are heterogeneous in their demand and sellers can offer different pricing schemes. The paper demonstrates the existence of a Pareto-dominant equilibrium where competing firms adopt different pricing schemes even though they sell the same product. At optimal prices, different consumers' surplus is maximized under different pricing schemes. Since certain pricing schemes are only available from certain sellers, this creates differentiation among the sellers allowing otherwise undifferentiated firms to earn large profits. This finding has implications for sellers, consumers and regulators. The paper also offers an explanation for the observed diversity in pricing schemes (such as per-user pricing and site licensing) offered by sellers of information goods. It shows that when competitors are weakly differentiated, each seller should offer a single pricing scheme that is different from that of its competitor. When the sellers are strongly differentiated, each seller should offer multiple pricing schemes.

  


 

Professors Sanjeev Dewan and Ken Kraemer
Title: “Complementarities in the Diffusion of Personal Computers and the Internet: Implications for the Global Digital Divide”     
Co-author(s): Dale Ganley (doctoral alumnus)

Accepted at: Information Systems Research

November 2008
   
This paper studies the cross-country diffusion of personal computers (PCs) and the Internet, and examines how the diffusive interactions across these technologies affect the evolution of the global digital divide. Whereas prior research has focused on factors that explain the existence or widening of the digital divide between developed and developing countries, we focus on a factor that we believe contributes to the narrowing of the global digital divide, which is the complementarity in the diffusion of personal computers (PCs) and the Internet. We adopt a generalized diffusion model that incorporates the impact of one technology’s installed base on the diffusion of the other technology. We estimate the model on data from 26 developing and developed countries over the period 1991-2005. We find that the co-diffusion effects between PCs and the Internet are complementary in nature and the impact of PCs on Internet diffusion is substantially stronger in developing countries as compared to developed ones. Further, our results suggest that these co-diffusive effects are a significant driver of the narrowing of the digital divide. We also examine the policy implications of our results, especially with respect to how complementarities in the diffusion of PC and Internet technologies might be harnessed to further accelerate the narrowing of the global digital divide.