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Product Recommendation Strategy and Seller-Biased Recommendations We now segue from bundling economics to the theory of strategic product recommendation, and the nuances that arise when a product or service provider rethinks its approach about how to push a more profitable product to consumers, who exhibit heterogeneity with respect to their fit with it. The optimal strategy depends both on the search cost faced by consumers as well as the accuracy of information the seller possesses about consumer preferences. Using a recommendation system, for example, a seller can nudge potential consumers to a high-margin product, instead of simply recommending the product that would have offered them the highest utility [[28]]. In a two-channel scenario, a larger bundle discount entices more consumers to buy both channels but also results in a higher lost revenue as consumers who would have purchased both in any case can now do so at a lower price. [Extracted from the article]

Bundling is considered to be an effective pricing strategy for zero-marginal-cost information goods. Yet, in many information-goods markets, the effectiveness of bundling remains hard to ascertain. This is because information goods exhibit other characteristics as well, which can potentially interfere with a manufacturer's bundling decision. For instance, they are also prone to piracy, and it is not obvious what impact, if any, piracy can have on the efficacy of bundling. To address this issue rigorously, we reexamine the classic bundling problem with the backdrop of piracy and show that piracy can severely diminish the appeal of bundling to a monopolist seller. Evidently, bundling abets piracy and, in certain situations, so much so that the losses from piracy more than nullify the traditional benefits of bundling. This insight is in fact fairly generalizable. The implication for manufacturers of digital goods is that they need to take piracy into consideration in their bundling decision. In particular, they should consider refraining from bundling when the illegal products are close substitutes for the legal ones. [ABSTRACT FROM AUTHOR]

To increase transparency of healthcare quality, the Centers for Medicare and Medicaid Services (CMS) initiated the Physician Quality Reporting System (PQRS). However, the impact of PQRS on physicians is unclear, particularly as related to their online reputation. Is there an association between a physician's online reputation and her adherence to clinical guidelines stipulated in the PQRS? Is online reputation associated with use of electronic health records (EHR)? To investigate these questions, we combine data on online physician reviews with the PQRS data on clinical guideline adherence and EHR use. Unlike prior research, which primarily uses clinical outcomes as proxies for care quality, our study uses adherence to clinical guidelines, a process measure that reflects physician conformance with evidence-based clinical practices. In addition, we focus on EHR use at the physician level, in contrast to the usual approach of examining it at the aggregate institutional level. Consistent with the economic theory of credence goods, we observe no significant relationship between physicians' adherence to clinical guidelines and their online reviews. Although there is some evidence of association between EHR use and their overall rating, similar relationships are not consistently observed for individual dimensional ratings. Overall, the online reputation of a physician exhibits minimal association with her actual clinical activities — and is mostly driven by latent topics in the textual reviews — implying that the ability of online reviews to inform prospective patients of care quality might be quite limited. Therefore, patients should be cautious when using online physician reviews, and policymakers should increase the accessibility of PQRS and other similar data to help patients make informed physician choices. [ABSTRACT FROM AUTHOR]

The role of education and enforcement in ensuring compliance with a law or policy has been debated for more than a century now. We reopen this debate in the context of security circumvention by employees, currently a leading cause of information security and privacy breaches. Drawing on prior literature, we develop a microeconomic framework that captures employees' circumventing behavior in the face of security controls. This allows us to obtain interesting insights that have implications for how an organization should employ anticircumvention measures. First, unless circumvention is rampant, education and enforcement often work better in combination, and not in isolation. Second, there are incentives for an organization to tolerate circumvention to an extent, even when education and enforcement are cheap. Finally, education and enforcement may be strategic complements or substitutes in different parts of the parameter space. When they are complements, if a change in cost parameters compels the organization to increase one, it would also require an increase in the other in lockstep. In contrast, when they are substitutes, an increase in one is associated with a decrease in the other. This paper was accepted by Chris Forman, information systems. [ABSTRACT FROM AUTHOR]

The issue of versioning of information goods has resurfaced, in part as a result of the recent popularity of downloadable contents (DLC) among video game manufacturers. The central idea behind the DLC strategy, zero-day DLCs in particular, is that consumers who find the base version of a game to be sufficiently close to their tastes would want more of its capabilities and would pay a premium to upgrade by purchasing a DLC. To better understand the implications of such a product-line strategy, in this work, we combine the literature on versioning with that on consumer learning. In doing so, we uncover an interesting economic phenomenon that, for an experience good, a manufacturer’s desire to vertically differentiate could actually stem from its inability to otherwise elicit unobserved heterogeneity in consumers’ perceived fit. In other words, we generalize versioning to accommodate both vertical and horizontal heterogeneity. [ABSTRACT FROM PUBLISHER]

Despite the potential of health information technology (HIT) systems to significantly reduce medical errors, streamline clinical processes, contain healthcare costs, and ultimately improve the quality of healthcare, their adoption by hospitals in the United States has been rather slow. To study this adoption process and get insights into the underlying mechanisms, in this work we synthesize the theories on social networks and knowledge transfer. We propose a research framework in which the absorptive capacity of a potential adopter and the collective disseminative capacity of connected adopters act as two key determinants of knowledge transfer in a socioeconomic network, and these two capacities substitute for each other in affecting HIT adoption. We also propose that, in a network setting, the mechanism of knowledge transfer manifests quite differently from that of social contagion in its impact on the diffusion process at different stages of adoption. Using a large longitudinal data set covering adoption decisions of more than five thousand hospitals across a thirteen-year horizon, we find strong support for our hypotheses. Our analysis shows that knowledge flow in provider networks plays a key role in fostering technology diffusion in initial years, allowing the contagion effect to set in sooner for quicker adoption in later years. Therefore, recent efforts at multiple levels to form integrated healthcare delivery networks should accelerate HIT adoption. [ABSTRACT FROM PUBLISHER]

Practice and Policy Oriented Abstract Forums such as Quora, Stack Exchange, Yahoo!Answers, Office Forum, and Photoshop Guru provide a free alternative to the paid support services offered by various software vendors; it is not obvious how a vendor should react to this competition. Specifically, should the vendor sell the product and support separately or should it offer them as a bundle? In practice, we observe both strategies in play, suggesting that there may be merits to each. This paper develops a microeconomic model to uncover how the presence of a forum may shape a vendor's pricing strategy. Our analysis reveals that a forum actually plays a dual role. On the one hand, the forum generates a shadow competition for the vendor-provided support by offering an imperfect substitute. On the other, the forum elevates the appeal of the software product by complementing it with free support. This dual role has interesting implications. When the forum is either weak or strong, in terms of its reach among consumers or its effectiveness in addressing their needs, the vendor's best strategy is to sell the product and support separately. When the strength is moderate, however, it becomes optimal for the vendor to just sell a bundle. The paper describes the reasons behind this surprising nonmonotonicity in the vendor's strategy. This research develops a microeconomic model to study the impact of support forums on the software industry. Motivated by the rapid growth of forums such as Stack Exchange, Quora, and Yahoo! Answers, we examine what impact they could have on a software vendor's pricing strategy. Because these forums provide an alternative, free source for obtaining software support, one might suspect that the shadow competition from them would eat into the profit the vendor makes from selling support services. We find that, although such a conclusion could be right at the forum's initial and formative stages, it may not hold later, especially if the forum generates enough momentum. This is because forums, besides playing a substitutive role, also have a complementary effect. At the initial stages, the substitutive role of the forum dominates. However, if and when the forum grows sufficiently, the complementary role eventually takes control. In the meantime, the vendor can try to mitigate the immediate losses and find temporary relief by adopting a strategy of bundling support services with the product. [ABSTRACT FROM AUTHOR]

Are Online Reviews of Physicians Reliable Indicators of Clinical Outcomes? A Focus on Chronic Disease Management Policy/practice abstract Because online reviews of physicians have grown in popularity, it is important to ask if such reviews actually convey useful information about the quality of care delivered by physicians. We address this issue by examining whether online reviews of physicians treating chronic conditions are indicative of clinical outcomes, such as inpatient readmission rates, based on a large longitudinal data set of physician reviews. The main finding is that online reviews are not informative in the context of chronic diseases and are not useful from the viewpoint of prospective patients. This is because the outcomes of chronic disease treatment are often not easy to comprehend by patients who have not undergone extensive medical training. Further, unlike outcomes of many episodic treatments, such as surgeries, the outcomes of chronic disease treatments may not be easily discernible to patients, and possible relapses can cloud patients' assessment of changes in their health conditions. The broader lesson is that consumer feedback is unlikely to be useful in contexts involving credence goods whose quality is difficult to ascertain even after consumption. Our research suggests that prospective patients should use online reviews with caution, and policymakers should make alternative information sources available to facilitate better decision making by patients. Current trends on patient empowerment indicate that patients who play an active role in managing their health also seek and use information obtained from online reviews of physicians. However, it is far from certain whether patient-generated online reviews accurately reflect the quality of care provided by physicians, especially in the context of chronic disease care. Because chronic diseases require continuous care, monitoring, and multiple treatments over extended time periods, it can be quite hard for patients to assess the effectiveness of a particular physician accurately. Given this credence nature of chronic disease care, the research question is the following: what is the information value associated with online reviews of physicians who treat chronic disease patients? We address this issue by examining the link between online reviews of physicians and their patients' actual clinical outcomes based on a granular admission–discharge data set. Contrary to popular belief, our study finds that there is no clear relationship between online reviews of physicians and their patients' clinical outcomes, such as readmission risk or emergency room visits. Our findings have two major implications: (a) online reviews may not be helpful in the context of healthcare services with credence aspects; (b) because treatments of chronic diseases have more credence good characteristics when compared with surgeries or other acute care services, one should not extrapolate research on surgeries and acute care services to chronic disease care. Rather, one should acquire a better understanding of the information conveyed in online reviews regarding a physician's ability to deliver certain clinical outcomes before drawing inferences. Our findings have important ramifications for all stakeholders including hospitals, physicians, patients, payers, and policymakers. [ABSTRACT FROM AUTHOR]

The usefulness of a software product becomes obvious to consumers only after they get to experience it and, upon experiencing it, they may reach different conclusions regarding its true value. We examine the problem of designing free software trials under a general learning function. Our analyses lead to several new findings. We find that a time-locked trial is optimal only when the rate of learning is sufficiently large. It is not optimal in other situations, even when it has an overall positive effect on consumers' valuations. We also find that positive network effects have a minimal impact on this optimality. Interestingly, we find that neither the optimal trial period nor the optimal price is monotonically increasing in the rate of learning. At moderate rates, the software manufacturer pursues a dual strategy of offering a longer trial as well as a lower price. At higher rates of learning, the manufacturer does the opposite. Our results are robust, and incorporating possibilities such as a trial providing a signal of quality or learning being correlated with prior valuation has little impact on their applicability. [ABSTRACT FROM AUTHOR]

The market for security software has witnessed an unprecedented growth in recent years. A closer examination of this market reveals certain idiosyncrasies that are not observed in a traditional market. For example, it is a highly competitive market with over 80 vendors. Yet the market coverage is relatively low. Prior research has not attempted to explain what makes this market so different. In this paper, we develop an economic model to find possible answers to this question. Our model uses existing classification of different types of attacks and models their resulting network effects. We find that the negative network effect from indirect attacks, which is further enhanced by value-based targeted attacks, provides a possible explanation for the unique structure of this market. Overall, our results highlight the unique nature of the security software market, furnish rigorous arguments for several counterintuitive observations in the real world, and provide managerial insights for vendors on market competition. [ABSTRACT FROM AUTHOR]

Application-based pricing is common in telecommunications. Wireless carriers charge consumers more per byte of traffic for text messages than they do for wireless surfing or voice calls. Such pricing is possible because carriers and handset manufacturers have the ability to tag and meter each application. While tagging and metering are possible in the case of closed platforms such as iPhone, they are not in the case of open platforms such as Android. Android is open source with open application programming interfaces, and anyone can develop applications for it. Because the carriers have little control over applications, Android is inherently disruptive of differential pricing across applications. Users and neutrality advocates support Android, believing that it can increase consumer surplus by disrupting differential pricing. However, we show that the equilibrium under differential pricing is different from the equilibrium under open platforms, and it is particularly so with regard to the sets of consumers served and the quantities consumed. With open platforms, certain consumers are either not served or they are served a quantity that is less than what they would be served under differential pricing. Consequently, the consumer surplus and the social surplus are often lower with open platforms. Similarly, firms are expected to prefer differential pricing. We show that this expectation is also not true under certain circumstances in which open platforms and neutral pricing work like a quasi-bundle. [ABSTRACT FROM AUTHOR]

Controlling digital piracy has remained a top priority for manufacturers of information goods, as well as for many governments around the world. Among the many forms taken by digital piracy, we focus on an increasingly common one—namely, online piracy—that is facilitated by torrent sites and cyberlockers who bring together consumers of pirated content and its suppliers. Motivated by recent empirical literature that makes a clear distinction between antipiracy efforts that restrict supply of pirated goods (supply-side enforcement) and ones that penalize illegal consumption (demand-side enforcement), we develop a simple economic model and discover some fundamental differences between these two types in terms of their impacts on innovation and welfare. All in all, supply-side enforcement turns out to be the "longer arm"—it has a more desirable economic impact in the long run. Our results have clear implications for manufacturers, consumers, and policy makers. The online supplement is available at https://doi.org/10.1287/mnsc.2017.2984. This paper was accepted by Chris Forman, information systems. [ABSTRACT FROM AUTHOR]

Effective patch management is critical to ensure the security of information systems that modern organizations count on today. Facing numerous patch releases from vendors, an information technology (IT) manager must weigh the costs of frequent patching against the security risks that can arise from delays in patch application. To this end, we develop a rigorous quantitative framework to analyze and compare several patching policies that are of practical interest. Our analyses of pure policies--policies that rely on a single metric such as elapsed time or patch severity level--show that certain policies are never optimal and no single policy may fit all information systems uniformly well. Depending on the context parameters, particularly the setup and business disruption costs for patching, either a time-based approach or an approach based on the cumulative severity level may be effective. To develop a more complete guideline for policy selection, we decipher hybrid policies that combine multiple metrics. Finally, we conduct extensive numerical experiments to verify the robustness of our analytical results. Overall, our paper establishes a comprehensive framework for analyzing various patching policies and furnishes useful insights for IT managers. [ABSTRACT FROM AUTHOR]

As the ability to measure technology resource usage gets easier with increased connectivity, the question whether a technology resource should be priced by the amount of the resource used or by the particular use of the resource has become increasingly important. We examine this issue in the context of pricing of wireless services: should the price be based on the service, e.g., voice, multimedia messages, short messages, or should it be based on the traffic generated? Many consumer advocates oppose discriminatory pricing across services believing that it enriches carriers at the expense of consumers. The opposition to discrimination has grown significantly, and it has even prompted the U.S. Congress to question executives of some of the biggest carriers. With this ongoing debate on discrimination in mind, we compare two pricing regimes here. One regime, namely, service pricing, involves pricing different services differently. The other one, namely, traffic pricing, involves pricing the traffic (i.e., bytes) transmitted. We show why the common wisdom, that discriminatory pricing across services increases profits and harms consumers, may not always hold. We also show that such discrimination can increase social welfare. [ABSTRACT FROM AUTHOR]

It is commonly believed that piracy of information goods leads to lower profits, which translate to lower incentives to invest in innovation and eventually to lower-quality products. Manufacturers, policy makers, and researchers all claim that inadequate piracy enforcement efforts translate to lower investments in product development. However, we find many practical examples that contradict this claim. Therefore, to examine this claim more carefully, we develop a rigorous economic model of the manufacturer's quality decision problem in the presence of piracy. We consider a monopolist who does not have any marginal costs but has a product development cost quadratic in the quality level produced. The monopolist faces a consumer market heterogeneous in its preference for quality and offers a quality level that maximizes its profit. We also allow for the possibility that the manufacturer may use versioning to counter piracy. We unexpectedly find that in certain situations, lower piracy enforcement increases the monopolist's incentive to invest in quality. We explain the reasons and welfare implications of our findings. [ABSTRACT FROM AUTHOR]

The literature on business process design has focused on issues such as bottlenecks, workflow configuration (series versus parallel), replacing an existing workflow with a shorter one, etc. One important issue that has not received adequate attention is the information-intensive nature of medical service systems. Performance of clinical workflows depends not only on how various steps are carried out but also on when certain information items are collected. We report the results of a long-term empirical study that looked at the implementation of a radiology information system (RIS) at a large regional network of radiology clinics. We find that a failure to gather necessary clinical background information in earlier steps significantly delays later steps and causes them to hang over, with a significant impact on the total turnaround time of diagnostic reports. We show that information systems can solve this problem by separating the task of gathering information from its usage and relocating that task upstream in the workflow. We argue that such unbundling can lead to shorter report turnaround times even if it significantly increases the utilization of the bottleneck server. These results have broader implications for the optimal design of other clinical workflows, such as the process of filling prescriptions in pharmacies or the typical surgical preanesthesia evaluation in hospitals. Finally, we explain why the impact of addressing hang-over is often nonuniform across clinical modalities, providers, and patient types. [ABSTRACT FROM AUTHOR]