Journal of Management Information Systems

Volume 33 Number 2 2016 pp. 542-545

Special Section: When Machine Meets Society: Social Impacts of Information and Information Economics

Clemons, Eric K, Dewan, Rajiv M, Kauffman, Robert J, and Weber, Thomas A

ERIC K. CLEMONS ([email protected]; corresponding author)is a professor of operations information and decisions at the Wharton School of the University of Pennsylvania. His education includes an B.S. in physics from MIT, and an M.S. and Ph.D. in operations research from Cornell University. His research for the past thirty years has involved the systematic study of the transformational effects of information on the strategy and practice of business. More recently, he has been studying privacy and the challenges of applying current antitrust law to online business models. He is the founder and project director for the Wharton School’s Sponsored Research Project on Information: Strategy and Economics within the Program for Global Strategy and Knowledge Intensive Organizations. He has held appointments at Wharton, the Harvard Business School, the Johnson School of Management at Cornell, the Engineering College at Cornell, Hong Kong University of Science and Technology, Peking University Law School, and the Desautels Centre at the Rotman School of the University of Toronto. He has published over 100 scholarly articles and regularly publishes online in Huffington Post, Business Insider, and Tech Crunch.

RAJIV M. DEWAN ([email protected]) is the Xerox Professor of Business and a professor of computers and information systems at the Simon Business School of the University of Rochester. His teaching and research interests include business analytics, organizational issues in management of information systems, the information technology industry, and financial information systems. He has won three Best Paper Awards for research, done in collaboration with colleagues at the Simon School, in the use of information systems standards in organizations, redesign of business processes, and management of websites. His articles have appeared in the Journal of Computing, Management Science, Decision Support Systems, and IEEE Transactions on Computers, among other journals.

ROBERT J. KAUFFMAN ([email protected]) is a professor of information systems at the School of Information Systems, Singapore Management University. He also serves as associate dean (Faculty) and deputy director of the Living Analytics Research Centre. He holds an M.S. (systems science) and a Ph.D. (industrial administration) from the Tepper School of Business, Carnegie Mellon University, as well as an M.A. (East Asian Studies) from Cornell University. Recently, he was a Distinguished Visiting Fellow at the Center for Digital Strategies of the Tuck School of Business at Dartmouth. His research focuses on technology and strategy, the economics of IT, technology in financial services and e-business, managerial decision making, and innovations in research methods. His work has appeared in Information Systems Research, Journal of Management Information Systems, MIS Quarterly, Telecommunications Policy, Management Science, Review of Economics and Statistics, Operations Research Letters, and elsewhere.

THOMAS A. WEBER ([email protected]) holds the chair of Operations, Economics and Strategy at the Management of Technology and Entrepreneurship Institute at the Swiss Federal Institute of Technology in Lausanne. Previously, he was a faculty member at Stanford University. Professor Weber is an Ingénieur des Arts et Manufactures (Ecole Centrale Paris) and a Diplom-Ingenieur in Electrical Engineering (Technical University Aachen). He holds a master’s degrees in Technology and Policy and Electrical Engineering and Computer Science from MIT, and a Ph.D. from the Wharton School. He was a visiting faculty member in Economics at Cambridge University and in Mathematics at Moscow State University. His research interests include the economics of information and uncertainty, the design of contracts and strategy. Dr. Weber’s papers have appeared in American Economic Journal: Microeconomics, Economics Letters, Economic Theory, Information Systems Research, Journal of Mathematical Economics, Management Science, Operations Research, and other journals. He is the author of Optimal Control Theory with Applications in Economics (MIT Press, 2011).

The academic study of information systems has transformed over half a century, as progress in computing itself became more the focus of large firms. In parallel, academic research began to focus more on managing computing and computing professionals, and on understanding the economic, social, and societal impacts of computing. Our special section includes three very different articles, addressing very different problems, using very different research traditions. All three articles address issues in the use of computing and in the impact of computing on individuals and organizations.

The first article, by Debabrata Dey and Atanu Lahiri, uses closed-form modeling to analyze a problem in pricing of online goods, and examines the implications for consumer surplus, producer profits, and social welfare. Their article, “Versioning: Go Vertical in a Horizontal Market?” addresses a frequently occurring phenomenon involved in software release. The problem they address is that of an initial software release along with a collection of upgrades available at additional cost, when those upgrades are provided at the time of initial release. Is it exploitive, even rapacious, to get some users hooked on a stripped-down version and then to opportunistically overcharge them once they are committed to the product? Is social welfare enhanced if everything is bundled at once and sold at a single bundled profit-maximizing price? Or is this strategy, with an initial version and optional enhancements, better in some sense, for at least some consumers? Dey and Lahiri demonstrate that the answer is, indeed, complex, and depends on a number of factors, including heterogeneity among consumers in their horizontal preferences, the distribution of these consumers, and their uncertainty about the product’s actual location in its horizontal product attribute space. Their findings demonstrate that under various combinations of conditions about consumers’ uncertainty about the product’s actual location in its product attribute space (PAS), their preferences for their ideal location of a product in its PAS, and the distribution of customers with these preferences in the product attribute space, this vertical versioning is the preferred mechanism for enhancing sales. The authors demonstrate the advantages of this sales strategy in terms of consumer surplus and seller profits. In addition, they are able to characterize the regions in which one or both groups benefit from this sales strategy and the regions in which this strategy is strictly welfare enhancing. Perhaps the most intuitive way of viewing their findings is that all consumers who believe they might want a product are able to sample it at a reduced price; those who love the product, or who demand the highest quality, find that their initial purchases include an embedded option to upgrade.

The second article, by Thomas A. Weber, analyzes another phenomenon of increasing economic importance, the rise of the sharing economy. The problem Weber addresses in “Product Pricing in a Peer-to-Peer Economy” dates back, although in a somewhat different context, to film studios’ having to deal with the impact of video rentals on their revenues. Do movie rentals—in essence sharing—tend to increase sales by opening up a market to individuals with enough propensity to use it but not enough to buy it? Or do rentals tend to reduce market size because many users who would have acquired a product for a single use now forgo a purchase in exchange for a single rental? Weber analyzes the problem by allowing for heterogeneous consumer characteristics in terms of their propensity of need and use value, that—together with the consumers’ level of patience (their common discount factor)—determine the strategic consumption behavior, reflected by a tendency to either defer use or else to invest in ownership early in order to capitalize on a peer-to-peer sharing market. The study shows that while sharing markets are generally beneficial to consumers because they add flexibility to their choices, they may or may not be beneficial for firms. A firm’s gain or loss from sharing depends critically on the marginal cost of the product relative to consumers’ valuations. For low-cost products, a monopolist would prefer no sharing, provided consumers are not too patient. For high-cost products, sharing does actually increase the monopolist’s payoff. For example, referring to the situations with relatively cheap products, where firms are worse off with sharing, the author notes: “a peer-to-peer economy increases both consumer surplus and social welfare, thus creating an implicit imperative for a social planner to help promote collaborative consumption.”

The final article, by Josephine Wolff, is largely empirical, and draws heavily from anthropological and sociological research traditions. As the title suggests, “Perverse Effects in Defense of Computer Systems: When More Is Less” explores situations in which attempts to increase computer security actually make computer systems less safe. Some situations are the direct result of human response to poorly designed security policies. If institutional security policies require users to make frequent changes to their passwords and require that passwords be complex, without embedded recognizable words or even without embedded pronounceable sequences of letters, users will respond by writing their passwords down in readily accessible locations, paradoxically increasing rather than decreasing vulnerability. If institutional security policies involve broadcast messages to users demanding that they revalidate all their security credentials, this invites targeted spear phishing, in which intruders masquerade as members of the institution’s data center and harvest large numbers of previously secure IDs and passwords. While the article does not always offer solutions, understanding potential security problems makes a meaningful contribution to solving those problems. For example, once data center directors are aware of the vulnerability of spear phishing, there are simple solutions. Before a major effort is undertaken to have users revalidate their credentials, everyone can be notified to respond only to requests that come from a recognized data center URL.

Each of the three articles thus contributes to our understanding of an aspect of the social and societal aspects of computing. Dey and Atanu teach us about optimal strategies for versioning and multileveled initial software releases in the presence of heterogeneous consumers, and indicate when indeed this increases social welfare. Weber explores widening the boundary of the sharing economy, by making the providers of the shared products an essential part of consideration. Wolff shows us how users, system administrators, and technology interact in the implementation of computer security policies.