The Emerging Role of Electronic Marketplaces on the Internet

NYU, Stern School of Business, IOMS Department, Center for Digital Economy Researc

Why Information Technology Workers Own Their Firms: How the Relative Importance of Human Capital Affects Firm Ownership

Knowledge workers are critical for the production of goods and services in the information economy, and thus investment in human capital plays an increasingly important role in economic growth. Since firms cannot directly own human capital and cannot easily monitor or verify human capital investments made by their employees, they need to devise appropriate incentives to attract skilled employees and to encourage them to develop their human capital. One such scheme is employee ownership of the firm, and in this paper we use the theory of incomplete contracts to show that when investments in human capital are relatively more important, firms should be characterized by higher levels of employee ownership. Specifically, we employ a model of the firm where production requires both human capital and nonhuman (e.g., physical) capital. Because of the difficulty of ex ante contracting with employees and managers to invest in human capital specific to the firm, employees and users need to be given partial ownership of firm in order to increase their incentives to invest in human capital. As the importance of human capital relative to the physical capital employed by the firm increases, the model predicts an increase in the appropriate level of employee and serial ownership. We test this prediction through the empirical analysis of firm-level data in three high tech sectors, software, hardware, and biotechnology. Our results confirm the predicted relationship, and demonstrate that the high degree of managerial ownership in the IT industry in comparison to the biotechnology industry (e.g., managerial ownership in software companies is an order of magnitude higher than biotechnology companies) can be explained by the relative importance of human capital compared to physical capital in these industries

Cooperation Without Enforcement? A comparative analysis of litigation and online reputation as quality assurance mechanisms

Online reputation mechanisms are emerging as a promising alternative to more established mechanisms for promoting trust and cooperative behavior, such as legally enforceable contracts. As information technology dramatically reduces the cost of accumulating, processing and disseminating consumer feedback, it is plausible to ask whether such mechanisms can provide an economically more efficient solution to a wide range of moral hazard settings where societies currently rely on the threat of litigation in order to induce cooperation. In this paper we compare online reputation to legal enforcement as institutional mechanisms in terms of their ability to induce cooperative behavior. Furthermore, we explore the impact of information technology on their relative economic efficiency. We find that although both mechanisms result in losses relative to the maximum possible social surplus, under certain conditions online reputation outperforms litigation in terms of maximizing the total surplus, and thus the resulting social welfa

Panel 3 How Should Information be Priced? Winning Strategies for the Digital Economy

This panel will discuss and debate the best strategies for pricing information goods such as news, online entertainment, software and even academic research and teaching materials, with a special focus on the emerging information marketplace enabled by the Internet. The pricing of information goods presents special difficulties for conventional markets (e.g., Varian 1995). In particular, digital copies of information goods are equivalent in all respects to the originals, and can be created and distributed almost without cost via the emerging information infrastructure. From a societal perspective, free (or nearly free) information would be efficient in a static sense: all consumers who valued information more than its marginal cost would gain access to it. However, this price would not generate revenues to provide incentives for the creation of new information goods

Electronic Commerce in the Retail Brokerage Industry: Trading Costs of Internet Versus Full Service Firms

Electronic brokerages on the Internet represent one of the most successful examples of electronic commerce, having captured over 20% of retail stock trades. According to economic theory, prices of commodities like securities should converge to one price in a market with the transparency of the Internet. A review of published commissions for online brokers shows that this "law of one price" does not appear to hold for the commissions charged by retail brokers. In this paper we explore one possible explanation for these differences in commissions. Specifically, we test whether the total cost of trading, including commissions and savings based on the quality of execution, obeys the law of one price. In a carefully designed experiment, we simultaneously purchased or sold 100 share lots of stock using a voice-broker, an expensive online broker and an inexpensive online broker in each trial. We found relatively few price improvements, which are a measure of execution quality. The difference among brokers in obtaining price improvements was not statistically significant. The brokers do exhibit statistically significant differences in total trading costs; at a volume of 100 shares commission costs dominate execution quality. We explore the implications of the findings for larger lot sizes, choosing a broker, and electronic commerce in the brokerage industry.Information Systems Working Papers Serie

Electronic Commerce in the Retail Brokerage Industry: Trading Costs of Internet Versus Full Service Firms

Electronic brokerages on the Internet represent one of the most successful examples of electronic commerce, having captured over 20% of retail stock trades. According to economic theory, prices of commodities like securities should converge to one price in a market with the transparency of the Internet. A review of published commissions for online brokers shows that this "law of one price" does not appear to hold for the commissions charged by retail brokers. In this paper we explore one possible explanation for these differences in commissions. Specifically, we test whether the total cost of trading, including commissions and savings based on the quality of execution, obeys the law of one price. In a carefully designed experiment, we simultaneously purchased or sold 100 share lots of stock using a voice-broker, an expensive online broker and an inexpensive online broker in each trial. We found relatively few price improvements, which are a measure of execution quality. The difference among brokers in obtaining price improvements was not statistically significant. The brokers do exhibit statistically significant differences in total trading costs; at a volume of 100 shares commission costs dominate execution quality. We explore the implications of the findings for larger lot sizes, choosing a broker, and electronic commerce in the brokerage industry.Information Systems Working Papers Serie

Does Anyone Read the Fine Print? Testing a Law and Economics Approach toStandard Form Contracts

A cornerstone of the law and economics approach to standard form contracts is the 'informed minority' hypothesis: in competitive markets, a minority of term-conscious buyers is enough to discipline sellers from offering unfavorable boilerplate terms. The informed minority argument is widely invoked to limit intervention in consumer transactions, but there has been little empirical investigation of its validity. We track the Internet browsing behavior of 45,091 households with respect to 66 online software companies to study the extent to which potential buyers access the standard form contract associated with software purchases, the end user license agreement. We find that only one or two out of every thousand retail software shoppers chooses to access the license agreement, and those that do spend too little time, on average, to have read more than a small portion of the license text. The results cast doubt on the relevance of the informed minority mechanism in a specific market where it has been invoked by both theorists and courts and, to the extent that comparison shopping online is relatively cheap and easy, suggest limits to the mechanism more generally

Are We Wise About Sub-Fields in IS? Lessons from Forming and Sustaining a Research Community

Sub-fields within I.S. generate benefits for their participants and for the larger research discipline. Sub-fields can also fragment and compete with the broad field they emerge from. One of the largest and most active research groups in the ICIS community is the researchers examining Information Systems Economics. After 20 years of the Workshop on Information Systems and Economics (WISE), this is a moment to identify what sub-fields contribute in I.S. and look forward to what sub-fields can do for ICIS researchers and I.S. practice in the future

Towards personalized data-driven bundle design with QoS constraint

Singapore National Research Foundation under its International Research Centre @ Singapore Funding Initiativ