First Look

July 5, 2006

More and more companies are "partitioning" their prices so consumers can view breakouts of various costs. Examples include hotels that present a bill showing a room key charge, and airlines that detail landing and refueling fees. How does partitioning influence consumer preference compared to the more traditional all-inclusive price tag? That's the subject of The Framing Effect of Price Format by Marco Bertini and Luc Wathieu. Other highlights this week include research on the impact on multinationals of their risk exposure strategies, and case studies on copyright compliance and the rebuilding of Rwanda's economy following the genocide of 1994.
— Sean Silverthorne

Working Papers

The Framing Effect of Price Format

Existing evidence suggests that preferences are affected by whether a price is presented as one all-inclusive expense or partitioned into a series of charges. To explain this phenomenon, we propose a simple psychological mechanism whereby price format determines how many product attributes are actively processed at the time of valuation. Three studies support the hypothesis that price partitioning acts as an incentive to process multiple product dimensions. This process sometimes leads to the paradoxical overweighting of minor (but easy to evaluate) attributes that would be overlooked under an all-inclusive price format. The effect of price partitioning on demand can be detrimental or beneficial, consistent with existing conflicting findings in the literature and with variance in practice. Beyond its predictive and prescriptive implications, this theory contributes to the general notion that pricing might affect as much as capture perceived value.


Capital Structure with Risky Foreign Investment

American multinational firms respond to politically risky environments by adjusting their capital structures abroad and at home. Foreign subsidiaries located in politically risky countries have significantly more debt than do other foreign affiliates of the same parent companies. American firms further limit their equity exposures in politically risky countries by sharing ownership with local partners and by serving foreign markets with exports rather than local production. The residual political risk borne by parent companies leads them to use less domestic leverage, resulting in lower firm-wide leverage. Multinational firms with above-average exposures to politically risky countries have 8.4 percent less domestic leverage than do other firms. These findings illustrate the impact of risk exposures on capital structure.



Cases & Course Materials

Ancora: A Private University in the Health Care of the Poor


Project Ancora signals the entry of the private sector into primary healthcare for Chile's poor. On a commercial basis, it seeks to deliver a more effective, efficient, and user-friendly primary healthcare model than the prevailing public health system, while operating under the same revenue structure (per capita payments from the Ministry of Health). A highly visible landmark initiative of the Medical School of the Catholic University, success would prove that quality healthcare is possible for the poor at no additional cost, serving as a national model. Failure, on the other hand, would have high institutional costs. Dr. Joaquin Montero, the head of Ancora and its intellectual father, must address the controversial project in the context of a presidential election. The case reviews the current Chilean healthcare model for the poor and the political realities surrounding it. As the seed money for Ancora comes from one single individual, it also illustrates an example of thoughtful philanthropy.

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Black Duck Software


Black Duck Software involves a venture-backed start-up that converted software developers' concerns about violating copyright licensing agreements or open source protocols into an opportunity to help firms use technology to better manage their compliance efforts. This case requires students to wrestle with the uncertainties of copyright compliance as they decide whether Black Duck should certify that their clients' code is non-infringing. It also raises questions about which growth opportunities Black Duck should pursue.

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EMC Corp.: Proposed Acquisition of VMware


This case involves the decision by the CEO of EMC Corp. whether to acquire VMware, a small Californian software firm that makes virtualization software. Among the factors to be considered are a pending patent case involving VMware and Microsoft and integration challenges associated with EMC's decision to spend $3 billion to acquire two other software firms based in California. The case raises issues surrounding deal protection devices.

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L. Londell McMillan


On the plane back to New York City, L. Londell McMillan focused on the music on his headphones, the latest offering from his friend and long-time client, Prince Rogers Nelson—the artist known as "Prince." McMillan and Prince had spent several days contemplating a strategy for the release of Musicology, Prince's newest album-length recording. As McMillan reflected on their discussions, the infectious music on his headphones underscored the enormous commercial potential of this project. To realize the full value of that potential, however, McMillan would have to work with Prince to craft and execute a carefully developed plan to market and distribute the album.

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Millennial Net


Millennial Net created self-organizing, ultra-low-power, wireless sensor networks; a space that was getting a lot of attention in 2004. The company was founded in 2000 and in early 2004 was looking for a second round of funding. The area had attracted a number of new ventures by impressive investors. What makes Millennial Net worth another round of backing?

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The Pilgrim Assurance Building


A local real estate developer has to decide how much to bid for a Boston office building in 2005.

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Southern States Communications


Managers receiving letters claiming that their products or services violate the intellectual property rights of another sometimes have a tendency to ignore them after their technical staff advises them that the claims have no merit. This case illustrates the perils of that approach. Legally astute managers accept responsibility for managing patent disputes; they do not hand them off to lawyers with a "you-take-care-of-it" approach. Litigation is less predictable than many managers realize. A number of choices must be made without full information.

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Rwanda: National Economic Transformation


This case is set in the year 2004, when Rwanda commemorated the 10th anniversary of a genocide that had claimed the lives of over 10 percent of its population. It focuses on the formulation of an economic strategy to rebuild the economy and its institutions after the devastation. Rwanda, one of the poorest countries in the world, exemplifies the challenges of economic development in Africa and in other low-income countries. The case provides a brief political and economic history of Rwanda, but focuses on the country before and after the genocide. A description of government policies since 1994 enables discussion of the efforts of the transitional government under Bizimungu (1994-2000) and the first Kagame government (2000-2004) to restore and build the economy. Rwanda: National Economic Transformation provides detailed economic and social data as of 2004, allowing evaluation of policy results. The case concludes as President Kagame, now formally elected as head of state, considers an economic strategy to meet Rwanda's current challenges and increase the country's prosperity over the next decade.

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Unmasking Manly Men: The Organizational Reconstruction of Men's Identity

Best Paper Proceedings of the Academy of Management (forthcoming).

This paper presents a case study of offshore oil platforms—a workplace that has traditionally rewarded men for masculine displays of prowess and interactions centered on proving masculinity—in which such displays and interactions were absent. We use this case to develop theory about how organizational features, such as work practices and norms, can disrupt conventional masculine identity-construction processes. In this case, organizational features designed to enhance safety and effectiveness had the unintended effect of changing how men enacted their masculine identities at work. Interview and participant observation data show that the major reorientation was away from seeking to garner masculinity credentials and towards seeking to learn how to perform their jobs more safely and effectively. The latter required that workers engage in mutual expressions of vulnerability: they acknowledged their physical limitations, learned from their mistakes, and attended to their own and others' emotions. As a result, these men expressed a broader repertoire of personal qualities, including qualities that run counter to conventionally masculine scripts. Our findings point to the mutability of masculine identity as a social status achievement and to how organizations can disrupt such tendencies and stand to gain in the process.

"Race-Based Judgments, Race-Neutral Justifications: Experimental Examination of Peremptory Use and the Batson Challenge Procedure."

Law and Human Behavior (in press).

The peremptory challenge remained an inviolate jury selection tool in the United States until the Supreme Court's decision in Batson v. Kentucky (1986). Batson's prohibition against race-based peremptories was based on two assumptions: 1) a prospective juror's race can bias jury selection judgments; 2) requiring attorneys to justify suspicious peremptories enables judges to determine whether a challenge is, indeed, race-neutral. The present investigation examines these assumptions through an experimental design using three participant populations: college students, advanced law students, and practicing attorneys. Results demonstrate that race does influence peremptory use, but these judgments are typically justified in race-neutral terms that effectively mask the biasing effects of race. The psychological processes underlying these tendencies are discussed, as are practical implications for the legal system.