Optimal Design of Contingency Pricing in IT-Intensive Commerce

We propose the use of quality contingent prices, where a firm announces quality-price pairs for various levels of quality instead of a single price, as a mechanism for mitigating quality uncertainty. Contingency pricing is especially applicable to IT-intensive commerce where quality uncertainty is prevalent. The modern IT infrastructure allows easy capture, verification, and dissemination of performance and quality data essential for the implementation of contingency pricing framework. Under very broad conditions, we show that when the market underestimates firm performance, it is optimal to design a full-rebate contingent contract. The optimal quality threshold is set at the quality level that maximizes the gap between market and actual performance probabilities, and the optimal market size is independent of the quality threshold. When contingency pricing is optimal, it is sufficient to consider two-part contingent contracts: two-part contract performs as well as any multipart contract. Use of contingent prices include IT-intensive settings such as ASP service levels, Internet connectivity, and transaction execution in financial services

Employee Compensation: Research and Practice

[Excerpt] An organization has the potential to remain viable only so long as its members choose to participate and engage in necessary role behaviors (March & Simon, 1958; Katz & Kahn, 1966). To elicit these contributions, an organization must provide inducements that are of value to its members. This exchange or transaction process is at the core of the employment relationship and can be viewed as a type of contract, explicit or implicit, that imposes reciprocal obligations on the parties (Barnard, 1936; Simon, 1951; Williamson, 1975; Rousseau, 1990). At the heart of that exchange are decisions by employers and employees regarding compensation

Why IT Managers Don\u27t Go for Cyber-Insurance Products

Despite positive expectations, cyber-insurance products have failed to take center stage in the management of IT security risk. Market inexperience, leading to conservatism in pricing cyber-insurance instruments, is often cited as the primary reason for the limited growth of the cyber-insurance market. In contrast, here we provide a demand-side explanation for why cyber-insurance products have not lived up to their initial expectations. We highlight the presence of information asymmetry between customers and providers, showing how it leads to overpricing cyber-insurance contracts and helps explain why cyber insurance might have failed to deliver its promise as a cornerstone of IT security-management programs

Can EVA create value?: a dynamic longitudinal investigation of three New Zealand companies

PhD ThesisWhen Economic Value Added (EVA™) was first promoted by the patent-holders, Stern Stewart and Company, it was hailed as an innovation in management accounting. The suggestion was that this measure could be used as the basis for the management control system within the firm, covering planning, control, investment decision making and remuneration determination. Many firms introduced the EVA system. New Zealand, in particular, was exposed to the EVA methodology through the publication in 1996 of a Value-Based Reporting Protocol that was recommended for state-owned enterprises. This study adopts a longitudinal perspective to examine the experience of three large companies in New Zealand, who implemented EVA in the late 1990s. These companies are ex-nationalised firms; two are state-owned enterprises and one is listed. The firms implemented EVA in the late 1990s and continued to use it as the management control system for a period of 10-15 years. The evidence is gathered from a questionnaire conducted in 1999, interviews conducted in 2001 and 2011, and supporting documentary evidence. It covers the entire ‘life cycle’ of EVA, from initial implementation, through its evolution to the eventual decline. Three different theoretical frameworks are developed from three academic disciplines and applied in an original context to analyse this EVA evidence. The first is the discovery theory framework, drawing from the economics literature base. This framework is used to consider whether EVA can be regarded as a discovery process within the organisation, to discover the source of value that is known to exist in these ex-nationalised firms. The second, from the management literature, is used to investigate whether EVA can be viewed as a management model in the firm. Finally, contingency theory as applied in management accounting is extended to a longitudinal perspective to analyse the variables that were important at each stage of the EVA life cycle. A central theme of each framework was the information provided and the incentives created by the measure. The thesis provides original contributions to the evidence on EVA, including why EVA needed to evolve and why it eventually failed. Further contributions are the suggestions for development and extension of each framework and the synthesising of the frameworks. Finally, implications for practitioners and policy makers are considered.CIMA grant

Demand response in electrical energy supply: an optimal real time pricing approach

In competitive electricity markets with deep concerns for the efficiency level, demand response programs gain considerable significance. As demand response levels have decreased after the introduction of competition in the power industry, new approaches are required to take full advantage of demand response opportunities. This paper presents DemSi, a demand response simulator that allows studying demand response actions and schemes in distribution networks. It undertakes the technical validation of the solution using realistic network simulation based on PSCAD. The use of DemSi by a retailer in a situation of energy shortage, is presented. Load reduction is obtained using a consumer based price elasticity approach supported by real time pricing. Non-linear programming is used to maximize the retailer’s profit, determining the optimal solution for each envisaged load reduction. The solution determines the price variations considering two different approaches, price variations determined for each individual consumer or for each consumer type, allowing to prove that the approach used does not significantly influence the retailer’s profit. The paper presents a case study in a 33 bus distribution network with 5 distinct consumer types. The obtained results and conclusions show the adequacy of the used methodology and its importance for supporting retailers’ decision making

Relationship Banking and SMEs: A Theoretical Analysis

Reliable information on small and medium sized enterprises (SMEs) is rare and costly for financial intermediaries. To compensate for this, relationship banking is often considered as the appropriate lending technique in the case of SMEs. In this paper we offer a theoretical model to analyze the pricing behavior of banks in a Bertrand competition framework with monitoring costs. We show that the lack of reliable information leads to comparably high interest rates even if a long-term relationship between borrower and bank exists. The paper offers a theoretical explanation why SME managers consider external finance as a major constraint to their business.Relationship banking; Financial constraints; Small and medium sized enterprises; Accounting

Nonlinear Effects of Dynamic Pricing on Export Performance: A Longitudinal Investigation

The knowledge of dynamic pricing in the international context still lacks sound theoretical underpinnings, and therefore renders few practical guidelines. This study develops a longitudinal framework to examine the nature of dynamic export pricing in exporting context. It shows that dynamic export pricing is a powerful marketing tool for exporting firms that helps them manage demand and react to competitors’ movements. By employing venture-level longitudinal data, first, this study estimates an inverted-U shaped relationship between dynamic export pricing and export performance. Second, this study further investigates the moderating role of two dimensions of export market dynamism – customer dynamism and competitive dynamism – in this inverted-U shaped relationship while simultaneously controlling for endogeneity and unknown firm heterogeneity. This study theorizes and tests two types of moderation effects of the curvilinear relationship, including changes of the shape and shifts of the turning point. The results indicate that both customer dynamism and competitive dynamism significantly moderate the relationship between dynamic export pricing and export performance. Particularly, the shifts of the turning point delineate the fit lines that pinpoint the best dynamic export pricing practice under different customer and competitive dynamism. Third, this study shows that previous actions and outcomes significantly influence the following year’s export performance. The findings indicate the evolutionary effects of the dynamic strategies and thereby provide a better understanding of shaping superior export performance in the long term

Research Framework, Strategies, And Applications Of Intelligent Agent Technologies (IATs) In Marketing

In this digital era, marketing theory and practice are being transformed by increasing complexity due to information availability, higher reach and interactions, and faster speeds of transactions. These have led to the adoption of intelligent agent technologies (IATs) by many companies. As IATs are relatively new and technologically complex, several definitions are evolving, and the theory in this area is not yet fully developed. There is a need to provide structure and guidance to marketers to further this emerging stream of research. As a first step, this paper proposes a marketing-centric definition and a systematic taxonomy and framework. The authors, using a grounded theory approach, conduct an extensive literature review and a qualitative study in which interviews with managers from 50 companies in 22 industries reveal the importance of understanding IAT applications and adopting them. Further, the authors propose an integrated conceptual framework with several propositions regarding IAT adoption. This research identifies the gaps in the literature and the need for adoption of IATs in the future of marketing given changing consumer behavior and product and industry characteristics

Research Framework, Strategies, And Applications Of Intelligent Agent Technologies (IATs) In Marketing

In this digital era, marketing theory and practice are being transformed by increasing complexity due to information availability, higher reach and interactions, and faster speeds of transactions. These have led to the adoption of intelligent agent technologies (IATs) by many companies. As IATs are relatively new and technologically complex, several definitions are evolving, and the theory in this area is not yet fully developed. There is a need to provide structure and guidance to marketers to further this emerging stream of research. As a first step, this paper proposes a marketing-centric definition and a systematic taxonomy and framework. The authors, using a grounded theory approach, conduct an extensive literature review and a qualitative study in which interviews with managers from 50 companies in 22 industries reveal the importance of understanding IAT applications and adopting them. Further, the authors propose an integrated conceptual framework with several propositions regarding IAT adoption. This research identifies the gaps in the literature and the need for adoption of IATs in the future of marketing given changing consumer behavior and product and industry characteristics