An Empirical Analysis of Virtual Goods Pricing Strategies in Virtual Worlds

3D Virtual worlds are computer mediated environments intended for the users to inhabit and interact via their representational avatars. Trading virtual goods in 3D virtual worlds plays an important role in realizing the virtual economy. This essay examines the impact of the unique virtual goods permission settings (Copy, Modify, and transfer) on creators’ pricing strategies. We collect data of virtual items from the Second Life marketplace XStreet to explore the factors that affect virtual goods prices. We use ANOVA to test the relationship between each permission and price, and conduct random effects model to investigate how permissions affect price in different categories. Our empirical results show that “Copy” permission, which might be regarded to reduce the profit of the creators, has a positive effect in virtual goods pricing strategies. Virtual items are more likely to be assigned “Copy” which seems to give additional duplicates for free. Furthermore, prices of virtual goods with “Copy” permission are higher than those without, and the more copies a consumer wants, the higher the price difference between the items with “Copy” and those without “Copy” permission. The effects of other issues on virtual goods prices are analyzed and managerial implications are discussed

Export or merge? Proximity vs. concentration in product space

This paper proposes a proximity-concentration tradeoff in product space as a determinant of horizontal foreign direct investment (FDI). Firms that enter a foreign market by exporting are able to capture consumer surplus from introducing a differentiated product with characteristics that the incumbent cannot match. In relatively globalized product space, in contrast, consumers perceive an entrant’s difference to existing products as less pronounced, so a consumer’s virtual distance costs in product space are lower and a merger with an incumbent (horizontal FDI) offers pricing power that allows the entrant to extract consumer rent. Lower physical trade costs of shipping make Bertrand price competition fiercer in differentiated product space and can provide an additional incentive for a merger. A basic product space model with a linear Hotelling setup can therefore explain why FDI has become more frequent in recent periods in the presence of falling trade costs. Cross-border merger and acquisitions data support the model’s prediction that horizontal FDI grows relatively faster than exports in differentiated goods industries, compared to homogeneous-goods industries

Intellectual Property Versus Prizes: A Policy-Lever Analysis

Most developed nations rely on intellectual property as one of their primary tools to promote private investments in R&D. An alternative approach is for the government to reward innovators with a prize instead of an intellectual property right, such that innovations fall immediately into the public domain. This idea dates back centuries, but over the past decade there has been an explosion of scholarship on the subject. Policymakers and even the press have started to talk about use prizes as an alternative to intellectual property – particularly for prescription drugs. In the scholarly literature, it is generally assumed that eliminating intellectual property rights would result in prices closer to marginal cost, thereby reducing deadweight loss. The standard objection to prize proposals is that the government might offer the wrong reward for innovation. Scholarship on the prize system largely focuses on design mechanisms to ensure that the government offers appropriate rewards to innovators. This article examines the growing literature on the prize system and reaches several conclusion about the choice between intellectual property and prizes. First, the proponents of the prize system have made a respectable case that the government could acquire sufficient information about innovations to calculate an appropriate prize. Several scholars have taken this argument too far, however, concluding that prizes are superior to intellectual property in part because they offer better incentives for innovation. This argument is mistaken because any mechanism to calculate rewards under a prize system could also be used to supplement or tax profits under intellectual property, resulting in the same outcome. The prize system therefore cannot be justified as a way to improve the incentives for innovation provided by intellectual property

The Essence of the New Economy

The New Economy should not be discounted as a temporary stock market phenomenon, but should be recognized as a real and sustainable phenomenon. The basic feature of the transition towards the New Economy is the rising importance of information—both as output and input good—in virtually all sectors of the economy. It would be fallacious to interpret the New Economy as a sector-specific phenomenon. Information increasingly constitutes a crucial input factor both in modern and traditional industries, and the information content of a final output is continuously rising throughout the economy. Present technological change, which is based upon modern information and communications technologies and on biotechnology, measures up to the industrial revolutions of past centuries. It would be premature, however, to identify fundamental trend shifts in aggregate productivity growth, because certain measurement issues are still unsettled and the observation period is still too short. Private firms must develop new business strategies in order to cope with potential market failure resulting from the properties of information goods as public goods, network goods, and experience goods. Bundling and versioning of products, attracting free riders, and —above all— establishing reputation are among the most important business strategies for the New Economy. The New Economy can be expected to reshape the structure of firms and industrial relations. On the one hand, reduced transaction costs will foster small, network-oriented niche suppliers. On the other hand, the New Economy will create substantial firm-size economies of its own—resulting from low marginal costs of information goods and competitive advantages from bundling and the exploitation of reputation. In addition, new types of incentive contracts that can serve to monitor knowledge-intensive activities will gain ground. Since human capital will replace physical capital as the crucial factor of production, improving the qualifications of the labor force is essential to successfully cope with adjustment challenges of the New Economy to the labor market. --

Evaluating Welfare with Nonlinear Prices

This paper examines how to evaluate consumer welfare when consumers face nonlinear prices. This problem arises in many settings, such as devising optimal pricing strategies for firms, assessing how price discrimination affects consumers, and evaluating the efficiency costs of many transfer programs in the public sector. We extend prior methods to accommodate a broad range of modern pricing practices, including menus of pricing plans. This analysis yields a simpler and more general technique for evaluating exact consumer surplus changes in settings where consumers face nonlinear prices. We illustrate our method using recent changes in mobile phone service plans.

The Role of the Mangement Sciences in Research on Personalization

We present a review of research studies that deal with personalization. We synthesize current knowledge about these areas, and identify issues that we envision will be of interest to researchers working in the management sciences. We take an interdisciplinary approach that spans the areas of economics, marketing, information technology, and operations. We present an overarching framework for personalization that allows us to identify key players in the personalization process, as well as, the key stages of personalization. The framework enables us to examine the strategic role of personalization in the interactions between a firm and other key players in the firm's value system. We review extant literature in the strategic behavior of firms, and discuss opportunities for analytical and empirical research in this regard. Next, we examine how a firm can learn a customer's preferences, which is one of the key components of the personalization process. We use a utility-based approach to formalize such preference functions, and to understand how these preference functions could be learnt based on a customer's interactions with a firm. We identify well-established techniques in management sciences that can be gainfully employed in future research on personalization.CRM, Persoanlization, Marketing, e-commerce,

The Measure and Regulation of Competition in Telecommunications Markets

The development of the canadian telecommunications web is significantly influenced by the regulatory framework put in place to oversee the evolution of the web toward a competitive system. This paper has two specific objectives: first, to develop a methodological framework, which will allow a proper characterization of the level of competition in the telecommunications industry, more specifically in the residential local access market and second, to recommend some (significant) changes in the CRTC approach to the regulation of the Canadian Telecommunications industry. I argue that the current approach to the regulation of telecommunications in Canada is likely to generate significant harms to consumers and businesses as well as efficiency losses for the Canadian economy. I conclude that there is a urgent need for a telecommunications regulatory reform, with a stronger accent put on three crucial roles of the telecommunications regulator as the trusted generator of information for the consumers, as the manager of the level playing field conditions, and as the promoter of efficient investment programmes. Le développement du réseau canadien des télécommunications est influencé de façon significative par le cadre réglementaire adopté pour régir l’évolution de ce réseau vers la concurrence. Cet article a deux objectifs principaux : d’une part, développer un cadre méthodologique adéquat pour caractériser le niveau de concurrence dans l’industrie des télécommunications, plus particulièrement du marché des services résidentiels locaux, et, d’autre part, de proposer des changements (importants) au cadre réglementaire actuel. Je montre que le cadre réglementaire actuel peut engendrer des problèmes importants pour les consommateurs et l’industrie ainsi que des pertes d’efficacité pour l’économie canadienne. Il existe un besoin urgent de réformer le cadre réglementaire actuel, en mettant l’accent sur trois rôles essentiels de l’agence de régulation des télécommunications comme fournisseur d’informations aux consommateurs, comme gestionnaire des conditions de concurrence loyale pour toutes les entreprises et comme promoteur de programmes d’investissement efficaces.competition, regulatory reform, telecommunications , concurrence, réforme de la réglementation, télécommunication

Market Leadership Through Technology - Backward Compatibility in the U.S. Handheld Video Game Industry

The introduction of a new product generation forces incumbents in network industries to rebuild their installed base to maintain an advantage over potential entrants. We study if backward compatibility moderates this process of rebuilding an installed base. Using a structural model of the U.S. market for handheld game consoles, we show that backward compatibility lets incumbents transfer network effects from the old generation to the new to some extent but that it also reduces supply of new software. We examine the tradeoff between technological progress and backward compatibility and find that backward compatibility matters less if there is a large technological leap between two generations. We subsequently use our results to assess the role of backward compatibility as a strategy to sustain market leadership.backward compatibility, market leadership, network effects, video games, two-sided markets