3 research outputs found
Versioning and Quality Distortion in Software? Evidence from E-CommercePanel Data
We present a framework for measuring software quality using pricing and
demand data, and empirical estimates that quantify the extent of quality
degradation associated with software ver- sioning. Using a 7-month,
108-product panel of software sales from Amazon.com, we document the
extent to which quality varies across different software versions,
estimating quality degradation that ranges from as little as 8% to as
much as 56% below that of the corresponding flagship ver- sion.
Consistent with prescriptions from the theory of vertical
di¤erentiation, we also find that an increase in the total number
of versions is associated with an increase in the difference in quality
between the highest and lowest quality versions, and a decrease in the
quality difference between 'neighboring' versions. We compare our
estimates with those derived from two sets of subjective measures of
quality, based on CNET editorial ratings and Amazon.com user reviews,
and discuss competing interpretations of the significant differences
that emerge from this comparison. As the first empirical study of
software versioning that is based on both subjective and econometrically
estimated measures of quality, this paper provides a framework for
testing a wide variety of results in IS that are based on related models
of vertical differentiation, and its findings have important
implications for studies that treat web-based user ratings as cardinal data
Pricing Digital Goods: Discontinuous Costs and Shared Infrastructure
We develop and analyze a model of pricing for digital products with
discontinuous supply functions. This characterizes a number of
information technology-based products and services for which variable
increases in demand are fulfilled by the addition of 'blocks' of
computing or network infrastructure. Examples include internet service,
telephony, online trading, on-demand software, digital music, streamed
video-on-demand and grid computing. These goods are often modeled as
information goods with variable costs of zero, although their actual
cost structure features a mixture of positive periodic fixed costs, and
zero marginal costs. The pricing of such goods is further complicated by
the fact that rapid advances in semiconductor and networking technology
lead to sustained rapid declines in the cost of new infrastructure over
time. Furthermore, this infrastructure is often shared across multiple
goods and services in distinct markets. The main contribution of this
paper is a general solution for the optimal nonlinear pricing of such
digital goods and services. We show that this can be formulated as a
finite series of more conventional constrained pricing problems. We then
establish that the optimal nonlinear pricing schedule with discontinuous
supply functions coincides with the solution to one specific constrained
problem, reduce the former to a problem of identifying the optimal
number of 'blocks' of demand that the seller will fulfil under their
optimal pricing schedule, and show how to identify this optimal number
using a simple and intuitive rule (which is analogous to 'balancing' the
marginal revenue with average 'marginal cost'). We discuss the extent to
which using 'information-goods' pricing schedules rather than those that
are optimal reduce profits for sellers of digital goods. A first
extension includes the rapidly declining infrastructure costs associated
with Moore's Law to provide insight into the relationship between the
magnitude of cost declines, infrastructure planning and pricing
strategy. A second extension examines multi-market pricing of a set of
digital goods and services whose supply is fulfilled by a shared
infrastructure. Our paper provides a new pricing model which is widely
applicable to IT, network and electronic commerce products. It also
makes an independent contribution to the theory of second-degree price
discrimination, by providing the first solution of monopoly screening
when costs are discontinuous, and when costs incurred can only be
associated with the total demand fulfilled, rather than demand from
individual customers.We develop and analyze a model of pricing for digital products with
discontinuous supply functions. This characterizes a number of
information technology-based products and services for which variable
increases in demand are fulfilled by the addition of 'blocks' of
computing or network infrastructure. Examples include internet service,
telephony, online trading, on-demand software, digital music, streamed
video-on-demand and grid computing. These goods are often modeled as
information goods with variable costs of zero, although their actual
cost structure features a mixture of positive periodic fixed costs, and
zero marginal costs. The pricing of such goods is further complicated by
the fact that rapid advances in semiconductor and networking technology
lead to sustained rapid declines in the cost of new infrastructure over
time. Furthermore, this infrastructure is often shared across multiple
goods and services in distinct markets. The main contribution of this
paper is a general solution for the optimal nonlinear pricing of such
digital goods and services. We show that this can be formulated as a
finite series of more conventional constrained pricing problems. We then
establish that the optimal nonlinear pricing schedule with discontinuous
supply functions coincides with the solution to one specific constrained
problem, reduce the former to a problem of identifying the optimal
number of 'locks' of demand that the seller will fulfil under their
optimal pricing schedule, and show how to identify this optimal number
using a simple and intuitive rule (which is analogous to 'balancing' the
marginal revenue with average 'marginal cost'). We discuss the extent to
which using 'information-goods' pricing schedules rather than those that
are optimal reduce profits for sellers of digital goods. A first
extension includes the rapidly declining infrastructure costs associated
with Moore's Law to provide insight into the relationship between the
magnitude of cost declines, infrastructure planning and pricing
strategy. A second extension examines multi-market pricing of a set of
digital goods and services whose supply is fulfilled by a shared
infrastructure. Our paper provides a new pricing model which is widely
applicable to IT, network and electronic commerce products. It also
makes an independent contribution to the theory of second-degree price
discrimination, by providing the first solution of monopoly screening
when costs are discontinuous, and when costs incurred can only be
associated with the total demand fulfilled, rather than demand from
individual customers
Is Oprah Contagious? Identifying Demand Spillovers in Product Networks
We study the online contagion of exogenous demand shocks generated by
book reviews featured on the Oprah Winfrey TV show and published in the
New York Times, through the co-purchase recommendation network on
Amazon.com. These exogenous events may ripple through and affect the
demand for a 'network' of related books that were not explicitly
mentioned in a review but were located 'close' to reviewed books in this
network. Using a difference-in-differences matched-sample approach, we
identify the extent of the variations caused by the visibility of the
online network and distinguish this effect from variation caused by
hidden product complementarities. Our results show that the demand shock
diffuses to books that are upto five links away from the reviewed book,
and that this diffused shock persists for a substantial number of days,
although the depth and the magnitude of diffusion varies widely across
books at the same network distance from the focal product. We then
analyze how product characteristics, assortative mixing and local
network structure, play a role in explaining this variation in the depth
and persistence of the contagion. Specifically, more clustered local
networks 'trap' the diffused demand shocks and cause it to be more
intense and of a greater duration but restrict the distance of its
spread, while less clustered networks lead to wider contagion of a lower
magnitude and duration. Our results provide new evidence of the
interplay between a firm's online and offline media strategies and we
contribute methods for modeling and analyzing contagion in networks