Evaluating Pricing Strategy Using e-Commerce Data: Evidence and Estimation Challenges

As Internet-based commerce becomes increasingly widespread, large data sets about the demand for and pricing of a wide variety of products become available. These present exciting new opportunities for empirical economic and business research, but also raise new statistical issues and challenges. In this article, we summarize research that aims to assess the optimality of price discrimination in the software industry using a large e-commerce panel data set gathered from Amazon.com. We describe the key parameters that relate to demand and cost that must be reliably estimated to accomplish this research successfully, and we outline our approach to estimating these parameters. This includes a method for ``reverse engineering'' actual demand levels from the sales ranks reported by Amazon, and approaches to estimating demand elasticity, variable costs and the optimality of pricing choices directly from publicly available e-commerce data. Our analysis raises many new challenges to the reliable statistical analysis of e-commerce data and we conclude with a brief summary of some salient ones.Comment: Published at http://dx.doi.org/10.1214/088342306000000187 in the Statistical Science (http://www.imstat.org/sts/) by the Institute of Mathematical Statistics (http://www.imstat.org

Information Disclosure and Regulatory Compliance: Economic Issues and Research Directions

The Sarbanes Oxley Act (SOA) introduced significant changes to financial practice and corporate governance regulation, including stringent new rules designed to protect investors by improving the accuracy and reliability of corporate disclosures. Briefly speaking, it requires management to submit a report containing an assessment of the effectiveness of the internal control structure, a description of material weaknesses in such internal controls and of any material noncompliance. Such mandatory regulations can have some broader ramifications on firm profitability, market structure and social welfare, many of which were unintended when policy makers first formulated this Act. Moreover, the tight coupling between compliance activities, information disclosure and IT investments can have implications for IT governance because of its potential to change relationships between technology investments and business. This article aims to provide some intuitive insights into the trade-offs involved for firms in disclosure of such information, and gives an overview of some research questions that would be of interest to academics, industry executives and policy makers alike.NYU, Stern School of Business, IOMS Department, Center for Digital Economy Researc

The Economic Incentives for Sharing Security Information

Given that Information Technology (IT) security has emerged as an important issue in the last few years, the subject of security information sharing among firms, as a tool to minimize security breaches, has gained the interest of practitioners and academics. To promote the disclosure and sharing of cyber-security information among firms, the US federal government has encouraged the establishment of many industry based Information Sharing & Analysis Centers (ISACs) under Presidential Decision Directive 63. Sharing security vulnerabilities and technological solutions related to methods for preventing, detecting and correcting security breaches, is the fundamental goal of the ISACs. However, there are a number of interesting economic issues that will affect the achievement of this goal. Using game theory, we develop an analytical framework to investigate the competitive implications of sharing security information and investments in security technologies. We find that security technology investments and security information sharing act as ``strategic complements'' in equilibrium. Our results suggest that information sharing is more valuable when product substitutability is higher, implying that such sharing alliances yield greater benefits in more competitive industries. We also highlight that the benefits from such information sharing alliances increase with the size of the firm. We compare the levels of information sharing and technology investments obtained when firms behave independently (Bertrand-Nash) to those selected by an ISAC which maximizes social welfare or joint industry profits. Our results help us predict the consequences of establishing organizations such as ISACs, CERT or InfraGard by the federal government.Technology Investment, Information Sharing, Security Breaches, Externality Benefit, Spillover Effect, Social Welfare

Dynamical Studies of Equations from the Gambier Family

We consider the hierarchy of higher-order Riccati equations and establish their connection with the Gambier equation. Moreover we investigate the relation of equations of the Gambier family to other nonlinear differential systems. In particular we explore their connection to the generalized Ermakov-Pinney and Milne-Pinney equations. In addition we investigate the consequence of introducing Okamoto's folding transformation which maps the reduced Gambier equation to a Li\'enard type equation. Finally the conjugate Hamiltonian aspects of certain equations belonging to this family and their connection with superintegrability are explored

Pricing Security Software: Theory and Evidence

Information Systems Working Papers Serie

A Strategic Analysis of Information Sharing Among Cyber Attackers

One firm invests in security to defend against cyber attacks by two hackers. Each hacker chooses an optimal attack, and they share information with each other about the firm's vulnerabilities. Each hacker prefers to receive information, but delivering gives competitive advantage to the other hacker. We find that each hacker's attack and information sharing are strategic complements while one hacker's attack and the other hacker's information sharing are strategic substitutes. The attack is inverse U-shaped in the firm's unit defense cost, and reaches zero, while the firm's defense and profit decrease, and the hackers' information sharing and profit increase. The firm's profit increases in the hackers' unit cost of attack, while the hackers' information sharing and profit decrease. Our analysis also reveals the interesting result that the cumulative attack level of the hackers is not affected by the effectiveness of information sharing between them and moreover, is also unaffected by the intensity of joint information sharing. We also find that as the effectiveness of information sharing between hackers increases relative to the investment in attack, the firm's investment in cyber security defense and profit are constant, the hackers' investments in attacks decrease, and information sharing levels and hacker profits increase. In contrast, as the intensity of joint information sharing increases, while the firm's investment in cyber security defense and profit remain constant, the hackers' investments in attacks increase, and the hackers' information sharing levels and profits decrease. Increasing the firm's asset causes all the variables to increase linearly, except information sharing which is constant. We extend our analysis to endogenize the firm's asset and this analysis largely confirms the preceding analysis with a fixed asset.Information Systems Working Papers Serie

Software Versioning and Quality Degradation: An Exploratory Study of the Evidence

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 versioning. 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 percent to as much as 56 percent below that of the corresponding flagship version. Consistent with prescriptions from the theory of vertical differentiation, 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 we 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 Information Systems 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

LEARNING-BY-DOING AND PROJECT CHOICE: A DYNAMIC STRUCTURAL MODEL OF CROWDSOURCING

This paper studies determinants of project choice in online crowdsourcing contests using a unique dataset from the world’s largest competitive software development portal. Particular attention is given to the strategic roles of learning and forward-looking behavior in influencing contestants’ decisions. We use a structural dynamic discrete programming (DDP) model to conduct our analysis and adopt a Bayesian approach to estimation. Our preliminary results provide evidence of learning-by-doing influencing propensities of users to choose projects of different types. The value of the parameter of intertemporal substitution that we identify suggests that while users are forward-looking, the aggregate behavior is far from fully rational. We attribute that result to mix of forward-looking and myopic users in the population