Amit Mehra

Competitive Strategies for Brick-and-Mortar Stores to Counter 'Showrooming'

Customers often evaluate products at brick-and-mortar stores to identify their “best-fit” product but buy it for a lower price at a competing online retailer. This free-riding behavior by customers is referred to as “showrooming,” and we show that this is detrimental to the profits of the brick-and-mortar stores. We first analyze price matching as a short-term strategy to counter showrooming. Price matching allows customers to purchase a product from the store for less than the store’s posted price, so one would expect the price matching strategy to be less effective as the fraction of customers who seek the matching increases. However, our results show that with an increase in the fraction of customers who seek price matching, the store’s profits initially decrease and then increase. While price matching could be used even when customers do not exhibit showrooming behavior, we find that it is more effective when customers do showrooming. We then study exclusivity of product assortments as a long-term str...

Cost Drivers of Versioning: Pricing and Product Line Strategies for Information Goods

In this paper, we extend the understanding of versioning strategy of an information goods monopolist and provide new insights on when versioning is optimal. To do so, we derive the optimal product line or versions of an information good and the corresponding prices. By relaxing common assumptions on consumers’ usage costs, versioning costs and capital research and development costs, we provide new insights as well as reconcile extant findings on versioning. For a good with no-free-disposal (NFD), i.e., one where consumers have usage costs, our results show that a monopolist’s marginal cost and consumers’ usage costs have the same impact on its versioning strategy, and that these factors are the sole reason for optimality of versioning of information goods. By endogenizing the production of the highest-quality, we show that capital costs create a downward distortion of quality even for the highest types in the market even under full information. Presence of separate versioning costs also lowers the qualiti...

Optimal Timing of Upgrades over a Software Product's Life Cycle

As software ages, it is increasingly unable to leverage new technologies and fulfill evolving user requirements. Firms producing software products therefore get an opportunity to introduce and sell upgrades. Our research looks at the optimal intervals between upgrades, and whether these intervals should increase or decrease over the products life cycle. Although the accelerating pace of hardware and software developments (e.g. Moores law) suggests decreasing intervals between upgrades, real business data for several commonly used commercial software products shows the opposite. To investigate this discrepancy, we set up model incorporating the costs and revenues from upgrades for a monopoly software producer. Our analysis confirms that the optimal upgrade intervals are monotonically increasing along the products life cycle. Understanding of the optimal upgrade intervals allows managers to infer the upgrade costs involved and thus helps them to allocate budgets for managing these upgrades.

Remedying Education with Personalized Homework: Evidence from a Randomized Field Experiment in India

Can Information and Communication Technology (ICT) enabled personalization remedy the educational production in resource-strapped schooling systems? We conduct a randomized field experiment on a group of residential schools in Hyderabad India to examine this question. In a school setting, students first learn concepts through class room instructions and then reinforce their learning by doing homework. In our experiment, students were first taught different topics in mathematics through classroom instructions, and then a randomly selected one half of them were assigned computer-generated adaptive homework (CGAHW) and the other half were offered paper-based traditional homework (PBTHW). In a PBTHW, a pre-decided fixed number of easy and hard questions were offered from different topics. In a CGAHW, first half of the total questions were offered in the easy category, and based on a student’s performance on these questions, later questions were adaptively generated such that: (1) more questions were offered on the topics in which student incorrectly answered questions and (2) hard questions on a topic were offered when the student correctly answered easy questions on that topic. Thus, while all PBTHW students received the same number of easy and hard questions on different topics, CGAHW students received different numbers and difficulty levels of questions on different topics based on their individual learning needs. A total of 50 homework in each category were offered to students between October 2014 and April 2015, and their learning was assessed in two standardized exams offered in this period.We found that CGAHW students on average obtained lower homework scores than PBTHW students, but they obtained 4.28 percent higher scores in exams than PBTHW students. Lower homework scores could be attributed to students receiving more questions in their weak areas in CGAHW. However, by doing more questions in their weak areas and less in their strong areas, students achieved personalized learning in CGAHW, and hence obtained higher exam scores. To provide evidence that personalized learning in CGAHW resulted in improvement in their exam scores, we show that students that were offered higher levels of personalization in CGAHW, obtained higher exam scores. To further understand the differential effect of CGAHW on students of different abilities, we categorized students in low, medium, and high categories of ability based on their mathematics scores in standardized exams at the beginning of experiment. We found that personalized learning through CGAHW helped the students in low and medium ability categories but not in high ability category. Overall, we developed and deployed an adaptive homework generation application in a field set up to show how ICT-enabled personalized learning could improve educational production with existing school resources.

Impact of Easier Store Access on Customers’ Online Purchase Behavior

Different mechanisms through which easier access to physical stores could affect customers’ online purchase behavior are not well understood in the literature. We use customer-level data of a large apparel retailer to estimate the treatment effect of store openings on the online purchase behavior of its existing customers. We find that retailer’s store openings resulted in increase in the online purchases from its existing customers. We propose two mechanisms that could explain these results: (1) store engagement effect - higher customers’ engagement with the retailer due to higher store interactions and (2) store return effect - reduced risk of online purchase due to the low cost option of store returns. We provide direct empirical evidence of these mechanisms on our field data. We further show that these effects are caused by reduction in customers’ distances from the retailer’s store due to the store openings.

Compensation Schemes for Programmers in the Presence of Open Source Software

The presence of an open source software community has provided firms with a non-monetary compensation dimension: the firm can substitute wages for the flexibility it gives its programmers to participate in open source projects. The problem for the software firm is to determine the optimal extent of this participation by trading off the reduction in the programmers effort on internal projects with the reduction in wages it needs to pay the programmer. That is, the firm needs to determine an optimal compensation package (a combination of wages and open source flexibility) to retain its programmers. We develop an analytical model that determines the optimal wage rate and the allowable extent of open source participation for a programmer during a contract period. We find that firms benefit more from the presence of open source in a tight labor market (e.g., when programmers have competing outside options). On the other hand, programmers get increased compensation due to presence of open source opportunities when they have few outside options. This benefit is more for less skilled programmers.

Introduction of Software Products and Services Through "Public" Beta Launches

Public “Beta” launches have become a preferred route of entry into the markets for new software products and web site based services. While beta testing of novel products is nothing new, typically such tests were done by experts within firm boundaries. What makes public beta testing so attractive to firms? By introducing semi-completed products in the market, the firm can target the early adopter population, who can then build the potential market through the word of mouth effect by the time the actual version of the product is launched. In addition, the information gathered through the usage of the public beta gives significant insights into customer preferences and consequently helps in building a better product. We build these marketing and product development implications in an analytical model to compare the different product introduction strategies like “skimming” or “penetration pricing” with beta launches. This analysis is done for products of branded and unbranded Web 2.0 companies like Google and Flickr etc. We also examine the impact of different monetization models like direct pricing and advertising on the beta launch strategy.

Software Upgrades with Price Competition

In this paper, we model competition between two software product vendors, an incumbent and entrant, with specific focus on the role of switching costs. Contrary to conventional wisdom, we find that under certain conditions the switching costs imposed by the incumbents product could actually hurt the incumbents profit and help the entrants profit. Additionally, we find that higher switching costs could actually result in higher consumer-surplus and social surplus. In our model, in a two period setting, the incumbent and entrant compete to sell to a mass of customers located on a Hotelling line. In the first period, the incumbent offers an initial version of the software product. In the second period, both incumbent and entrant offer improved versions of the software, with upgrade discounts to customers who have already purchased the incumbents product in the first period. Our analysis reveals that the incumbents profit is maximized when the entrant poaches some of the incumbents first period customers through upgrade pricing - i.e. the incumbent would rather that some of her customers switch to the entrant than not. This is consistent with several instances of industry practice. The existence of this equilibrium requires sufficiently high switching costs. However, the profit of the incumbent in this equilibrium reduces with switching costs. This implies that to the extent the incumbent can endogenize switching costs; it prefers the switching costs to be just large enough to satisfy the existence criterion. Our model extends prior literature on duopolistic competition to the context of competition marked by price discrimination where such pricing is enabled through digital information exchange mechanisms such as e-mails and firm web-sites etc.