Mikhael Shor

Digital redemption of coupons: satisfying and dissatisfying effects of promotion codes

Coupons, in the form of “promotion codes”, are now a mainstay of the online shopping experience, but online coupon redemption differs substantively from that in traditional retailing. Offline redemption of coupons is customer‐initiated while Internet shoppers are usually prompted to enter a code towards the conclusion of the checkout process. This prompting may influence shopper perceptions and behaviors such as shopping cart abandonment. Results showed strong negative effects on price fairness, satisfaction, and purchase completion in the code‐absent group and positive effects on fairness and satisfaction in the code‐present group. Presents implications for effective market segmentation through the use of online coupon codes.

Age Effects and Heuristics in Decision Making

Using controlled experiments, we examine how individuals make choices when faced with multiple options. Choice tasks are designed to mimic the selection of health insurance, prescription drug, or retirement savings plans. In our experiment, available options can be objectively ranked, allowing us to examine optimal decision making. First, the probability of a person selecting the optimal option declines as the number of options increases, with the decline being more pronounced for older subjects. Second, heuristics differ by age, with older subjects relying more on suboptimal decision rules. In a heuristics validation experiment, older subjects make worse decisions than younger subjects.

Social Sharing of Information Goods: Implications for Pricing and Profits

Social sharing of information goods---wherein a single good is purchased and shared through a network of acquaintances such as friends or coworkers---is a significant concern for the providers of these goods. The effect of social sharing on firm pricing and profits depends critically on two elements: the structure of the underlying consumer network and the mechanism used by groups to decide whether to purchase at a given price. We examine the effect of social sharing under different network structures (decentralized, centralized, and complete), which reflect a range of market conditions. Moreover, we draw from the mechanism design literature to examine several approaches to group decision making. Our results suggest that a firm can benefit from increased social sharing if the level of sharing is already high, enabling a pricing strategy targeted primarily at sharing groups rather than individuals. However, the point at which sharing becomes marginally beneficial for a firm depends on both the distribution of group sizes (which derives from the network structure) and the group decision mechanism. Additional insights are obtained when we extend the model to capture homophily in group formation and the potential that a subset of consumers will never share for ethical reasons.

An experiment on learning with limited information: nonconvergence, experimentation cascades, and the advantage of being slow

We present the results of an experiment on learning in a continuous-time low-information setting. For a dominance solvable version of a Cournot oligopoly with differentiated products, we find little evidence of convergence to the Nash equilibrium. In an asynchronous setting, characterized by players updating their strategies at different frequencies, play tends toward the Stackelberg outcome which favors the slower player. Convergence is significantly more robust for a serial cost sharing game, which satisfies a stronger solution concept of overwhelmed solvability. As the number of players grows, this improved convergence tends to diminish, seemingly driven by frequent and highly structured experimentation by players leading to a cascading effect in which experimentation by one player induces experimentation by others. These results have implications both for traditional oligopoly competition and for a wide variety of strategic situations arising on the Internet.

The impact of malicious agents on the enterprise software industry

In this paper, a competitive software market that includes horizontal and quality differentiation, as well as a negative network effect driven by the presence of malicious agents, is modeled. Software products with larger installed bases, and therefore more potential computers to attack, present more appealing targets for malicious agents. One finding is that software firms may profit from increased malicious activity. Software products in a more competitive market are less likely to invest in security, while monopolistic or niche products are likely to be more secure from malicious attack. The results provide insights for IS managers considering enterprise software adoption.

A Game-Theoretic Model of E-Marketplace Participation Growth

Despite their potential to significantly reduce transaction costs for both buyers and sellers, e-marketplaces have struggled. Recent literature has examined the value propositions of e-marketplaces and proposed conceptual frameworks for their analysis. In this research, we move beyond conceptual analysis by developing a game-theoretic model of return-on-investment (ROI)-driven e-marketplace participation growth. This model provides insights into expected e-marketplace growth and participation, and can be used to determine both the viability and expected long-run size of a given e-marketplace. Our results indicate that the pricing policy of the e-marketplace intermediary can affect the rate at which participation grows and, therefore, sentiment about its prospects. We focus on e-marketplaces that add value to buyers and sellers by increasing the efficiency of administrative tasks but also simultaneously add value to buyers and reduce value to sellers by lowering prices for goods purchased. Value to participants in these e-marketplaces is determined by the volume of transactions that can be conducted using the e-marketplace, resulting in a two-sided network effect--buyers reacting to sellers and sellers reacting to buyers. The game-theoretic model identifies an e-marketplace equilibrium at which participation growth is predicted to stop.

Industry Concentration in Common Value Auctions: Theory and Evidence

We examine theoretically and experimentally two countervailing effects of industry concentration in common value auctions. Greater concentration of information among fewer bidders reduces competition but increases the precision of private estimates. We demonstrate that this generally leads to more aggressive bidding. However, the reduction in competition dominates the informational effects, resulting in lower prices. We examine these hypothesized effects experimentally by conducting a series of auctions with constant informational content but distributed among a varying number of bidders. The experimental results are consistent with our theoretical predictions.

Decentralization, Transfer Pricing and Tacit Collusion

Research in accounting traditionally regards transfer pricing as an intra-firm transaction problem. Within the context of a simple Cournot model, we demonstrate that firms can use transfer prices strategically as a collusive device. While firms are individually better off from a centralized organizational form with each internal division transferring intermediate goods at marginal cost, all firms benefit from a collusive agreement to organize along profit centers, transferring goods above marginal cost. This collusion yields roughly twice the competitive profits and is sustainable even when collusion on quantities is not. This practice may also escape legal scrutiny, even though the same cost shifting between regulated monopolists and their corporate affiliates is regarded as a major concern for regulators and researchers.

Behavioral Antitrust and Merger Control

Scholarship on competition policy has begun to explore the implications of learning from behavioral research and to challenge the assumption of profit maximization at the heart of neoclassical economic theory of the firm. This scholarship is briefly reviewed, focusing on merger control. Prospects for basing merger control entirely on data from actual mergers or laboratory experiments are explored. Also explored are implications of behavioral research for merger assessment in consumer-goods industries. The conclusion is that competition policy should continue to rely on neoclassical economic analysis based on the assumption of profit maximization.

Reducing Choice Overload without Reducing Choices

Previous studies have demonstrated that a multitude of options can lead to choice overload, reducing decision quality. Through controlled experiments, we examine sequential choice architectures that enable the choice set to remain large while potentially reducing the effect of choice overload. A specific tournament-style architecture achieves this goal. An alternate architecture in which subjects compare each subset of options to the most preferred option encountered thus far fails to improve performance due to the status quo bias. Subject preferences over different choice architectures are negatively correlated with performance, suggesting that providing choice over architectures might reduce the quality of decisions.