- 10 Jul 2007
- Working Paper Summaries
The Persuasive Appeal of Stigma
Are minority groups more persuasive when their conversations with majority groups are conducted face-to-face? Interracial interactions are among the most perilous social occasions in contemporary America, full of opportunities for things to go awry. People in stigmatized groups, for instance, may worry that members of majority groups hold prejudiced attitudes that can lead to discriminatory or offensive behavior. Members of majority groups, for their part, may fear coming across as biased or racist. While psychology has traditionally explored the damaging effects of such interactions on social exchange, new findings contribute to the growing recognition that stigma may be a two-sided construct, marked with a host of costs but occasional benefits. This study demonstrates the persuasive power of stigmatized individuals and shows how self-presentational concerns may change attitudes. Key concepts include: During face-to-face interactions, stigmatized minorities may sometimes have an edge in persuading majority group members. The stigma of being labeled racist may in some situations be potent enough to promote an ironic power reversal. While whites may assume the more solicitous role typically associated with stigmatized minorities, it is important to add that the discomfort that accompanies such efforts may simply pose yet another problem for members of stigmatized groups to manage. This research underscores the need to examine social interactions around stigma in real-world contexts, from organizations to interpersonal relationships. Closed for comment; 0 Comments.
- 10 Jul 2007
- Working Paper Summaries
Platform Envelopment
Established platform providers can be difficult to displace. This paper explores a path to platform leadership change that does not rely on breakthrough innovation or Schumpeterian creative destruction: a phenomenon the authors call "platform envelopment." In practical terms, envelopment entails one platform provider adding another platform's functionality to its own, and then offering a multiplatform bundle. Eisenmann and his colleagues describe a variety of envelopment attacks based on the relationship between the attacker's platform and its target's, and then discuss the economic and strategic motivations for each attack type. Key concepts include: Envelopment is a powerful force shaping platform evolution. Well-established incumbents that otherwise are sheltered from entry by standalone rivals, due to strong network effects and high switching costs, may be vulnerable to envelopment. A conglomeration attack means that platforms are functionally unrelated but may share common users and components. In such an attack, bundling can yield significant economies of scope. Example: Apple iPhone bundling smart phone with iPod. With an intermodal attack, the platforms are weak substitutes, and the attacker may neutralize an emerging competitive threat. Example: Blockbuster bundling DVD-by-mail service with store rentals. With a foreclosure attack, the platforms are complements. If envelopment reduces the appeal of a standalone provider's crucial complement, the attacker may strengthen its position vis-à-vis rivals in its core market. Example: Microsoft bundling Media Player with its Windows operating system. Closed for comment; 0 Comments.
- 28 Jun 2007
- Working Paper Summaries
Film Rentals and Procrastination: A Study of Intertemporal Reversals in Preferences and Intrapersonal Conflict
Throughout our lives, we face many choices between activities we know we should do and those we want to do. Examples of such choices include whether or not to visit the gym, to smoke, to order a greasy pizza or a healthy salad for lunch, and to watch an action-packed blockbuster or a history documentary on Saturday night. Using data on consumption decisions over time from an Australian online DVD rental company, this paper investigates how and why individuals make systematically different decisions when their choices will take effect in the present versus the future. Key concepts include: The more "should watch" characteristics and the fewer "want to watch" characteristics a DVD has, the longer an individual will postpone watching that DVD. Companies that loan goods to consumers and are interested in predicting return times may be better able to forecast borrowing times based on the extent to which the items are "should" or "want" goods. Consumers may be better able to take steps that curb impulsive behavior. Closed for comment; 0 Comments.
- 28 Jun 2007
- Working Paper Summaries
Alignment in Cross-Functional and Cross-Firm Supply Chain Planning
Organizational behavior has become an increasingly important aspect of operations management. In this paper, alignment refers to an organization's sales and manufacturing groups working toward the same target for the sales of a particular product. What are the best conditions in supply chain planning for alignment across functions and across the firm? Kraiselburd and Watson push the frontier of theory with their use of mathematical modeling and game theory. They show that seemingly behavioral and psychological effects may still occur if both parties are rational profit maximizers in an economic sense. Key concepts include: Alignment can be achieved even if incentives are misaligned. The communication structure often determines whether or not alignment occurs. The key to alignment is less how each function is rewarded (i.e., transfer prices) but rather what each function knows about the other function's beliefs. Any effort to increase knowledge of each other's perspective, especially the final perspective, will improve the changes of alignment even if there is no change in incentives. Closed for comment; 0 Comments.
- 26 Jun 2007
- Working Paper Summaries
Contracting in the Self-reporting Economy
Intellectual property can be used by its owner directly, licensed to a third party for a fixed royalty, or licensed to a third party for a variable royalty. The variable royalty arrangement depends on self-reporting by the licensee, which in turn induces demand for auditing by the licensor. This research studies a setting with the following features: a production cost advantage on the part of the outside party that creates gains from licensing; a limited liability constraint that prevents the licensee from owing more royalties than the gross profits of licensing the intellectual property and prevents the licensor from capturing all of the economic surplus via a fixed royalty agreement; and accounting and auditing costs that reduce the benefits of a variable royalty agreement. Key concepts include: The owner of intellectual property will enter into a variable royalty agreement with an outside party if—and only if—the accounting and auditing costs are sufficiently low. With higher cost levels, the owner will use the property directly if the owner can do so profitably. Otherwise, the owner will prefer to license the property in exchange for a fixed royalty. The expected aggregate accounting system and audit costs are minimized when the licensor can compel the licensee to bear the audit costs in case underreporting is detected. Internal control provisions within the Sarbanes-Oxley Act make variable royalty arrangements based on self-reporting and auditing relatively more attractive than such arrangements prior to Sarbanes-Oxley. Sarbanes-Oxley effectively lowers the licensor's audit costs even though the licensor must audit all low reports, because auditing all low reports deters the licensee from underreporting in the first place. Closed for comment; 0 Comments.
- 22 Jun 2007
- Working Paper Summaries
Proprietary vs. Open Two-Sided Platforms and Social Efficiency
The rising popularity of the open-source software movement has prompted many governments around the world to enact policies promoting open-source software systems at the expense of proprietary systems. Oftentimes, these policies seem to stem from a presumption (shared by some economists) that open software platforms are inherently more efficient than their proprietary counterparts. But is that so? This paper provides a simple model of two-sided platforms that clearly shows how this common intuition breaks down in two-sided markets. Key concepts include: Proprietary platforms may induce higher levels of product variety, user adoption, and total social welfare than open platforms. Proprietary platforms are sometimes more socially desirable than open platforms, which runs against the common intuition that open platforms are more efficient. Analysis of socially desirable benefits in two-sided markets follows a very different logic from that in one-sided markets, and may lead to counterintuitive conclusions. More in-depth research on the subtler aspects of platform governance in two-sided markets (cooperatives, associations, etc.) should inform both policymakers and business practitioners. Closed for comment; 0 Comments.
- 21 Jun 2007
- Working Paper Summaries
Multi-Sided Platforms: From Microfoundations to Design and Expansion Strategies
The term "platform" is increasingly popular among executives today. Platforms, and multi-sided platforms (MSPs) in particular, serve the needs of interdependent constituents. Although MSPs have existed for centuries in the form of matchmakers and village markets, information technology has increased tremendously the opportunities for building larger, more powerful, and more valuable platforms. At the same time, by expanding the potential scope of platforms, information technology has also increased the number and complexity of factors, both economic and technical, that drive the strategic design of MSPs. Surprisingly, few companies rigorously analyze the underlying drivers of their MSPs, and the emerging business and economics literature on two-sided markets has not been very helpful in this direction, either. This article provides a general framework to help organize managerial thinking about MSPs. Key concepts include: This framework is useful because it induces systematic analysis of MSP strategic opportunities and the critical tradeoffs involved, based on fundamental economic functions that cut across any specific industry setting. Strategic design defines the relevant space in which the MSP operates, its multiple constituents, and its competitors, both actual and potential. Designing and expanding MSPs is a complex, daunting, and, most importantly, dynamic process. The most successful MSPs are constantly evolving. While this dynamism is especially true in high-tech markets, even traditional businesses can unlock powerful sources of indirect network effects with a little technological help and a good amount of creativity. The devil is in the details. Closed for comment; 0 Comments.
- 21 Jun 2007
- Working Paper Summaries
Merchant or Two-Sided Platform?
With ever more sophisticated logistics and the rise of information technologies, intermediaries and market platforms have become increasingly ubiquitous and important agents in the digital economy. While market intermediation is not a new phenomenon, the digital economy has revealed that there can be two polar types of intermediaries: "merchants," which acquire goods from sellers and resell them to buyers, and "two-sided platforms," which allow affiliated sellers to sell directly to affiliated buyers. As examples, retailers like Walmart.com and Amazon.com are (mostly) merchants; eBay is a pure two-sided platform; and Apple's iTunes digital music store exhibits both merchant and platform features. This research is a first pass at delineating the economic tradeoffs between the merchant and two-sided platform modes. Key concepts include: Economic tradeoffs are affected by several fundamental economic factors: indirect network effects between buyers and sellers; asymmetric information between sellers and the intermediary; and investment incentives, product complementarities, and substitutability. This analysis holds true for a monopoly intermediary. With competing intermediaries, more subtle strategic issues may arise that are beyond the scope of this research. Closed for comment; 0 Comments.
- 14 Jun 2007
- Working Paper Summaries
Evolution Analysis of Large-Scale Software Systems Using Design Structure Matrices and Design Rule Theory
Designers have long recognized the value of modularity. But because design principles are informal, successful application depends on the designers' intuition and experience. Intuition and experience, however, do not prevent a company such as Microsoft from constantly grappling with unanticipated challenges and delays in bringing software to market. Clearly, designers need a formal theory and models of modularity and software evolution that capture the essence of important but informal design principles and offer ways to describe, predict, and resolve issues. This paper evaluates the applicability of model and theory to real-world, large-scale software designs by studying the evolution of two complex software platforms through the lens of design structure matrices (DSMs) and the design rule theory advanced by Kim Clark and Carliss Baldwin. Key concepts include: Important software modularity principles have remained informal. DSM models reveal a key characteristic of modular architectures: The design rules must be explicitly defined so that otherwise dependent modules can be decoupled. Each independent module can then be replaced with a better version. DSM modeling and the design rule theory of Clark and Baldwin have the potential to formally account for how design rules create options in the form of independent modules and how they enable independent substitution. DSM modeling and design rule theory are general enough to model decisions other than those encoded in source code. Closed for comment; 0 Comments.
- 12 Jun 2007
- Working Paper Summaries
Public Action for Public Goods
In poor rural communities, public goods such as health and education services, clean water, electricity, and transport facilities are remarkably scarce. Within this picture of overall inadequacy there is considerable variation both across countries and inside national boundaries. How can these variations in public goods be explained? This paper surveys theoretical and empirical research on the characteristics of groups and the ability of members to act collectively to promote group interests. There remain many missing pieces in the public goods puzzle and there are important policy implications as a result. Key concepts include: Existing models of collective action cannot fully explain the observed variations in access to public goods. The theoretical and empirical literature needs to take into account the interaction of "top-down" processes with "bottom-up" factors. While overall access to many basic public goods is likely to improve in the coming years, the focus of research is likely to shift to quality differences. Quality is much harder to evaluate than access, and the incentives for government bureaucrats to deliver quality will be different from their incentives for access. This will also have implications for the appropriate level of political and administrative decentralization. Closed for comment; 0 Comments.
- 08 Jun 2007
- Working Paper Summaries
Poverty, Social Divisions and Conflict in Nepal
More than 70 civil wars have occurred around the world since 1945. Understanding what causes such violent conflicts to begin and then fester is a topic of increasing research interest to economists. In Nepal the conflict known as "the People's War" began in 1996 and spread to all parts of the country, resulting in the deaths of more than 13,000 people. Do and Iyer considered a wide range of economic and social factors that they hypothesized could affect the likelihood of violent conflict, and econometrically examined their relationship with conflict intensity. These factors include geographic conditions (mountains and forests), economic development, social diversity including linguistic diversity, and government investment in infrastructure. Do and Iyer's nuanced approach allowed them to examine the spread of a single conflict across different parts of the country and over time. Key concepts include: In the initial stages of the conflict, total deaths caused by Maoist insurgents and government forces were higher in areas with greater poverty. Yet this relationship with poverty changed over time: As Maoists gained control of the poorest areas, the highest intensity of conflict shifted to places that were somewhat better off. Conflict intensity was higher in areas with geographical characteristics that favor insurgents, such as mountains and forests. There was no significant relationship between conflict intensity and linguistic diversity. The relationship with caste polarization was slight. The changing relationship with poverty suggests that researchers need to consider a conflict's prior evolution in their broader analyses. Closed for comment; 0 Comments.
- 05 Jun 2007
- Working Paper Summaries
Leading and Creating Collaboration in Decentralized Organizations
No matter how a multi-divisional organization is designed, it will need to find effective ways for its units to spontaneously and responsively cross boundaries. This paper discusses 3 key barriers to collaboration and information-sharing within an organization, and offers 3 strategies to overcome them. Key concepts include: The first barrier is intergroup bias: the systematic tendency to treat one's own group or its members better than another group and its members. Company funding, access to markets, intellectual property rights, and other organizational assets are all potentially scarce resources over which groups may have to, or feel they have to, compete. Recommendation to counteract this barrier: Link group interests to overarching interests. The second barrier is group territoriality expressed through behavior and physical symbols that separate "us" from "them." Territoriality stems from a group's needs for identity, efficacy, and security. Recommendation: Frame collaboration as the solution to group needs. The third barrier consists of poor strategies that members of different organizational divisions use when they negotiate with each other. Errors include the belief in a "fixed pie" in negotiations, the failure to carefully consider the decision processes of one's negotiation partner, and the failure to recognize opportunities for negotiation in the first place. Recommendation: Enable and encourage effective negotiation skills. Closed for comment; 0 Comments.
- 01 Jun 2007
- Working Paper Summaries
Firm-Size Distribution and Cross-Country Income Differences
Country-to-country differences in per-worker income are known to be enormous. Per capita income in the richest countries exceeds that in the poorest countries by more than a factor of 50. The consensus view in scholarly literature on development accounting is that two-thirds of these variations can be attributed to differences in efficiency or total factor productivity (TFP). Emerging research, however, suggests other possibilities. Alfaro and coauthors, applied a monopolistic competitive firm model to a new dataset of more than 20 million firms in nearly 80 developing and industrialized countries. They then calculated the extent to which differences in the misallocation of resources (as well as differences in the amount of physical and human capital resources) explain dispersion in income per worker. Their results suggest that misallocation of resources is a crucial determinant of income dispersion. Key concepts include: Particular sources of inefficiency, such as credit market imperfections, macroeconomic volatility, defective bankruptcy procedures, or a malfunctioning regulatory environment, drive country-to-country differences in firm size distribution. Misallocation of resources is a crucial determinant of income dispersion. Closed for comment; 0 Comments.
- 31 May 2007
- Working Paper Summaries
Extremeness Seeking: When and Why Consumers Prefer the Extremes
When can variety be helpful and when can it be harmful? Conventional wisdom suggests that a product provider enhances the overall attractiveness of a set of options by adding more alternatives to the mix. By contrast, Gourville and Soman’s research indicates that in certain, predictable cases, adding more alternatives to an assortment leads consumers to choose either the most basic or the most "fully loaded" product or service, be it a camera, car, cable TV service, laptop, or vacation package in Italy. Key concepts include: As the variety of choices available to consumers grows in size and those choices vary in their distinct features, consumers often prefer the options at either extreme—either the basic model or the fully loaded model. While getting some consumers to trade up to the "fully loaded" model may seem desirable for a seller, it is not clear that the overall effect of such polarization will be positive. Rather than encourage consumers to choose a basic or fully loaded product, product providers may wish to turn an uncertain customer into a certain customer by offering an alternative that best meets the customer's needs. Understanding how additional choices have an impact on demand for specific models in a product portfolio is essential for efficient inventory and product line management. Closed for comment; 0 Comments.
- 31 May 2007
- Working Paper Summaries
Organizational Designs and Innovation Streams
Ambidextrous organizational designs are those that sustain current success while simultaneously building new products, services, or processes. This research looks at a sample of 13 business units and describes the relations between alternative organizational designs and innovation streams. These business units used 4 distinct organizational designs in service of innovating and improving existing products: functional, cross-functional, spinouts, and ambidextrous. The researchers also used longitudinal data in order to explore how designs evolve over time and how design transitions affect innovation success. Key concepts include: Ambidextrous organizational designs are composed of an interrelated set of competencies, cultures, incentives, and senior team roles. These designs are significantly more effective for serving innovation than are functional, cross-functional, and spinout designs. Business units that switched to an ambidextrous design improved their innovation outcomes while transitions to cross-functional or spinout designs did not. Ambidextrous designs for carrying out innovations helped the performance of existing products. Closed for comment; 0 Comments.
- 30 May 2007
- Working Paper Summaries
Ambidexterity as a Dynamic Capability: Resolving the Innovator’s Dilemma
Can organizations adapt and change—and if so, how does this occur? There are two major camps in the research on organizational change: those that argue for adaptation, and those that argue that as environments shift, inert organizations are replaced by new forms that better fit the changed context. There are data to support both arguments. This paper discusses the idea and practicality of ambidexterity and shows how the ability to simultaneously pursue emerging and mature strategies is a key element of long-term success. Key concepts include: Ambidexterity, the ability of a firm to simultaneously explore and exploit, is one solution to the innovator's dilemma as outlined by HBS professor Clayton Christensen. Under the appropriate conditions, organizations may be able to explore new avenues as well as exploit their existing capabilities. Strategic contradictions can be resolved by senior leaders who design and manage their own processes and, in turn, ambidextrous organizations. Leadership is therefore key. Closed for comment; 0 Comments.
- 25 May 2007
- Working Paper Summaries
Self-Regulatory Institutions for Solving Environmental Problems: Perspectives and Contributions from the Management Literature
What role can business managers play in protecting the natural environment? Academic research on when it might "pay to be green" has advanced understanding of how and when firms achieve sustained competitive advantage. The focus of such research, however, has begun to change in light of limits to available "win-win" opportunities and to gaps in regulation. This paper, intended as a book chapter, reviews current literature and explores the potential of self-regulatory institutions to solve environmental problems. Key concepts include: Firms have created self-regulatory institutions to mitigate the risk of common sanctions and to address information asymmetries regarding production and employment practices. Some self-regulatory institutions appear to reduce asymmetries in information, others to facilitate coordinated investment in solutions to common problems. Future research needs to identify the factors that lead some, but not all, self-regulatory institutions to be effective routes to solving environmental problems. The literature reviewed here is proving valuable to scholars who study the self-regulation of standards, knowledge sharing, and open-source software development. Closed for comment; 0 Comments.
- 24 May 2007
- Working Paper Summaries
Repugnance as a Constraint on Markets
While some kinds of transactions are repugnant at certain times and places, they are considered perfectly acceptable in other situations. This essay examines a wide range of examples, including the buying and selling of kidneys for transplantation. Repugnance has important consequences for the transactions and markets we see. Key concepts include: Distaste for certain kinds of transactions can be a real constraint on markets and how they are designed, every bit as real as the constraints imposed by technology or the requirements of incentives and efficiency. Discussion is essential. Just as economists see very few tradeoffs as taboo, non-economists often decline to discuss tradeoffs at all, preferring to focus on the repugnance of transactions like organ sales. The laws against buying or selling kidneys reflect a reasonably widespread repugnance, making it difficult for arguments that focus only on the gains from trade to make headway in changing these laws. But that does not mean that gains from exchange can't be realized. Behavioral economics has been concerned mostly with how individuals make choices. But attitudes about repugnance shape whole markets, and therefore shape what choices people face, and so may be an important way that "behavioral" considerations affect the economy. Closed for comment; 0 Comments.
- 23 May 2007
- Working Paper Summaries
What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns
Most industries exhibit some degree of geographic concentration. Although many theories attempt to explain this agglomeration, empirical tests of these theories are difficult as they all predict similar outcomes within individual industries. This study considers how industries coagglomerate—that is, which industry pairs locate together—to form a tractable analysis. The authors specifically study the relative importance of proximity to suppliers and customers, to firms using similar labor, and the sharing of ideas for explaining agglomeration. Key concepts include: In manufacturing, transport costs for goods, people, and ideas all still seem to matter. Given the remarkable decline of transportation costs over the 20th century, it is striking that transport costs remain so important. It is unclear how these results would extend to non-manufacturing industries. Services are costly to transport since they involve face-to-face interaction, and idea flows might take precedence in non-manufacturing industries. Closed for comment; 0 Comments.
Managing Proprietary and Shared Platforms: A Life-Cycle View
The challenges facing platform managers vary systematically depending on (1) whether the platform is proprietary or shared and (2) the stage of platform development. This article summarizes the results of a multiyear research project on platform strategies, including interviews with 30 companies. It describes 3 stages of the platform life cycle—platform design, network mobilization, and platform maturity—and reviews in depth the strategic decisions and management issues for each stage. Key concepts include: As proprietary platforms mature, broad forces at work often open them up to new partners. Once network mobilization winds down, sponsors of a proprietary platform frequently license additional providers to serve market segments with diverse needs. These new providers will seek a say in the platform's direction. As shared platforms mature, their renewal may hinge on partners ceding power to a central authority that can set priorities and settle disputes over who will provide next-generation technologies. Over time, forces will tend to push both proprietary and shared platforms toward hybrid licensing forms, typified by central control over platform technology and shared responsibility for serving users. Closed for comment; 0 Comments.