Gal Oestreicher-Singer

Information in Digital, Economic and Social Networks

Digital technologies have made networks ubiquitous. A growing body of research is examining these networks to gain a better understanding of how firms interact with their consumers, how people interact with each other, and how current and future digital artifacts will continue to alter business and society. The increasing availability of massive networked data have led to several streams of inquiry across fields as diverse as computer science, economics, information systems, marketing, physics and sociology. Each of these research streams asks questions which at their core involve ‘information in networks’ — its distribution, its diffusion, its inferential value and its influence on social and economic outcomes. We suggest a broad direction for research into social and economic networks. Our analysis describes four kinds of investigation that seem most promising. The first studies how information technologies create and reveal networks whose connections represent social and economic relationships. The second examines the content that flows through networks and its economic, social and organizational implications. A third develops theories and methods to understand and utilize the rich predictive information contained in networked data. A final area of inquiry focuses on network dynamics and how IT affects network evolution. We conclude by discussing several important cross-cutting issues with implications for all four research streams, which must be addressed if the ensuing research is to be both rigorous and relevant. We also describe how these directions of inquiry are interconnected: results and ideas will pollinate across them, leading to a new cumulative research tradition.

The Network Value of Products

Traditionally, the value of a product has been assessed according to the direct revenues the product creates. However, products do not exist in isolation but rather influence one anothers sales. Such influence is especially evident in e-commerce environments, in which products are often presented as a collection of web pages linked by recommendation hyperlinks, creating a large-scale product network. The authors present a systematic approach to estimate products’ true value to a firm in such a product network. Their approach, which is in the spirit of the PageRank algorithm, uses available data from large-scale e-commerce sites and separates a products value into its own intrinsic value, the value it receives from the network, and the value it contributes to the network. The authors demonstrate their approach using data collected from the product network of books on Amazon.com. Specifically, they show that the value of low sellers may be underestimated, whereas the value of best sellers may be overestimated. The authors explore the sources of this discrepancy and discuss the implications for managing products in the growing environment of product networks.

Research Commentary---Information in Digital, Economic, and Social Networks

Digital technologies have made networks ubiquitous. A growing body of research is examining these networks to gain a better understanding of how firms interact with their consumers, how people interact with each other, and how current and future digital artifacts will continue to alter business and society. The increasing availability of massive networked data has led to several streams of inquiry across fields as diverse as computer science, economics, information systems, marketing, physics, and sociology. Each of these research streams asks questions that at their core involve “information in networks”---its distribution, its diffusion, its inferential value, and its influence on social and economic outcomes. We suggest a broad direction for research into social and economic networks. Our analysis describes four kinds of investigation that seem most promising. The first studies how information technologies create and reveal networks whose connections represent social and economic relationships. The second examines the content that flows through networks and its economic, social, and organizational implications. A third develops theories and methods to understand and utilize the rich predictive information contained in networked data. A final area of inquiry focuses on network dynamics and how information technology affects network evolution. We conclude by discussing several important cross-cutting issues with implications for all four research streams, which must be addressed if the ensuing research is to be both rigorous and relevant. We also describe how these directions of inquiry are interconnected: results and ideas will pollinate across them, leading to a new cumulative research tradition.

Are Digital Rights Valuable? Theory and Evidence from Ebook Pricing

The effective management of digital rights is the central challenge in many industries making the transition from physical to digital products. We present a new model that characterizes the value of these digital rights when products are sold both embedded in tangible physical artifacts, and as pure digital goods, and when granting rights permitted by ones digital rights management (DRM) platform may affect the extent of digital piracy. Our model indicates that in the absence of piracy, digital rights should be unrestricted, since a seller can use its pricing strategy to optimally balance sales between physical and digital goods. However, the threat of piracy limits the extent to which digital rights should be granted: the value of digital rights is determined not only by their direct effect on the quality of legal digital goods, but by a differential piracy effect that can lower a sellers pricing power. When the latter effect is sufficiently high, granting digital rights can have a detrimental effect on value - our model indicates that this kind of effect is more likely to be observed for digital rights that aim to replicate the consumption experience of physical goods, rather than enhancing a customers digital experience. We test the predictions of our analytical model using data from the ebook industry. Our empirical evidence supports our theoretical results, showing that four separate digital rights each have an economically significant impact on ebook prices, and establishing that the digital rights which aim to replicate physical consumption while increasing the threat of piracy are the ones that have negative impact on seller value. We also show that if the pricing of a digital good is keyed off that of an existing tangible good, optimal pricing changes for the former should be more nuanced, rather than simply mirroring changes in the price of the latter, and we discuss the effect of the technological sophistication of potential customers on optimal pricing and rights management. Our results represent new evidence of the importance of an informed and judicious choice of the different digital rights granted by a DRM platform, and provide a new framework for guiding managers in industries that are progressively being digitized.

Is Oprah Contagious? Identifying Demand Spillovers in Online Networks

We study the spread of exogenous demand shocks generated by book reviews featured on the Oprah Winfrey TV show and published in the New York Times through the online co-purchase recommendation network on Amazon.com. We leverage the co-purchase recommendation network on Amazon.com to determine how such exogenous events might affect the demand for books that were not explicitly mentioned in a review but are located “close” to reviewed books in a product network. Our results show that the demand shock diffuses to books that are up to three links away from the reviewed book. However, the magnitude of diffusion varies widely across books at the same network distance from reviewed products. We also describe how product characteristics, assortative mixing and network properties can explain this variation in the depth of contagion. We discuss the significance of these results and their implications for the design of networks of products as well as for optimizing digital marketing spillovers.

Is Oprah Contagious? The Depth of Diffusion of Demand Shocks in a Product Network

Table A1 depicts comparison statistics on the matched sample versus the treatment groups for each distance. Similarly, Table A2 depicts comparison statistics on the network-based group used as a control versus the treatment groups. The variable Total25 is used to control for Amazon’s

A Potato Salad with a Lemon Twist: Using Supply-Side Shocks to Study the Impact of Low-Quality Actors on Crowdfunding Platforms

25 shipping policy, capturing whether the sum of the price of the reviewed book and any of the books in the local network passes the

The Potato Salad Effect: The Impact of Competition Intensity on Outcomes in Crowdfunding Platforms

25 free shipping threshold; indegree captures the number of books directed to a focal book in the product network; local clustering measures the degree to which books in the product network tend to cluster together to create groups characterized by a their density of ties; same binding indicates whether a purchased book is of the same binding type (e.g., hardcover, paperback) as the reviewed book; sale price controls for the sales price of a purchased book; average rating captures the subjective evaluation of a book as reported by consumers; and sales rank measuring a book’s demand relative to other products.

A Potato Salad With a Lemon Twist: Using a Supply-side Shock to Study the Impact of Opportunistic Behavior on Crowdfunding Platforms

Crowdfunding platforms are peer-to-peer two-sided markets that enable amateur entrepreneurs to raise money for their ventures over the Internet. However, in allowing practically anyone to enter, such markets risk being flooded with low-quality offerings, a situation that might be detrimental to the success of higher-quality products. We empirically investigate the implications of such a situation, referred to as a “market of lemons”. We analyze a quasi-natural experiment in the form of an exogenous media shock that occurred on Kickstarter.com. The shock was followed by a sharp increase in the number of campaigns, particularly low-quality ones, offered on the supply side of the market; no such increase was observed on the demand side of the market (backers who contribute to campaigns). These unique conditions enable us to estimate how crowdfunding platforms are affected by the presence of an atypically large number of low-quality campaigns, while controlling for temporal trends and seasonal effects. We use two novel identification strategies to show that, in line with theory, a market of lemons significantly decreases the revenue of successful campaigns. However, campaign quality moderates this effect, such that the performance of the highest-quality campaigns is unaffected. We discuss theoretical implications as well as managerial implications for entrepreneurs.

Content or community? a digital business strategy for content providers in the social age

Crowdfunding platforms are peer-to-peer two-sided markets that enable amateur entrepreneurs to raise money for their ventures over the Internet. However, in allowing practically anyone to enter, such markets risk being flooded with low-quality offerings, a situation that might be detrimental to the success of higher-quality products. We empirically investigate the implications of such a situation, referred to as a “market of lemons”. We analyze a quasi-natural experiment in the form of an exogenous media shock that occurred on Kickstarter.com. The shock was followed by a sharp increase in the number of campaigns, particularly low-quality ones, offered on the supply side of the market; no such increase was observed on the demand side of the market (backers who contribute to campaigns). These unique conditions enable us to estimate how crowdfunding platforms are affected by the presence of an atypically large number of low-quality campaigns, while controlling for temporal trends and seasonal effects. We use two novel identification strategies to show that, in line with theory, a market of lemons significantly decreases the revenue of successful campaigns. However, campaign quality moderates this effect, such that the performance of the highest-quality campaigns is unaffected. We discuss theoretical implications as well as managerial implications for entrepreneurs.