{"title":"Innovating Big Tech Firms and Competition Policy: Favoring Dynamic Over Static Competition","authors":"N. Petit, D. Teece","doi":"10.2139/ssrn.3229180","DOIUrl":"https://doi.org/10.2139/ssrn.3229180","url":null,"abstract":"\u0000 This paper gives a fresh account of competition in the digital economy. Economic analysis in the field of industrial organization remains largely focused on a sophisticated version of the Schumpeter–Arrow debate, which is unresolved and largely irrelevant. We posit the need to look at competition anew. Static models of monopoly firms and markets in equilibrium are often used to characterize Big Tech firms’ size and scope. We suggest that this characterization is inappropriate because the growth and diversification of many digital firms lead to a situation of broad-spectrum competition that cuts across markets. Current market positions do not reflect entrenched monopoly power but are vulnerable to competitive pressure of disequilibrating forces arising from the use of data-driven operating models, astute resource orchestration, and the exercise of dynamic capabilities. A few strategic errors by management in the handling of internal transitions and/or external challenges and they could be competitively impaired. The implications of a more dynamic understanding of the competition process in the tech sector are explored. We consider how big data and entrepreneurial management impacts firm performance. We also explore the nature of different types of rents (Schumpeterian, Ricardian, and monopoly rents) and suggest a modified long-term consumer welfare standard for competition policy. We formulate preliminary tests and predictors to assess dynamic competition. Our perspective advances a policy stance that favors innovation.","PeriodicalId":226335,"journal":{"name":"POL: Profit Maximization (Topic)","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116046799","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Does Customer Email Engagement Improve Profitability? Evidence from a Field Experiment of a Subscription-Based Service Provider","authors":"Yiwei Wang, Lauren Xiaoyuan Lu, Pengcheng Shi","doi":"10.2139/ssrn.3636595","DOIUrl":"https://doi.org/10.2139/ssrn.3636595","url":null,"abstract":"Problem definition: This paper empirically investigates how customer email engagement affects the profitability of subscription-based service providers. \u0000 \u0000Academic/practical relevance: Service providers have been using email engagement to increase customer retention. However, it is unclear whether email engagement improves their profitability. The existing literature focuses on email engagement’s benefit of customer retention but ignores its associated operating cost to serve retained customers. \u0000 \u0000Methodology: We analyze the outcome of a field experiment conducted by a large U.S. car wash chain, which offers tiered subscription services to consumers and employs an RFID-based technology to track subscriber service events. We apply survival analysis and difference-in-differences methods to estimate the effects of email engagement on the retention and service consumption of subscribers. \u0000 \u0000Results: We find that a one-month engagement with two emails separated by a half-month interval increased the likelihood of subscriber retention by 7.4% five months after the experiment started and decreased the subscriber churn odds by 26.3% for the entire five-month duration. Meanwhile, we find that the same engagement increased a subscriber’s per-period service consumption by 17.5%, about half of which is attributed to a net increase in a subscriber’s service consumption conditional on her being retained and the other half to increased subscriber retention. Our heterogeneous analysis finds that the effect of email engagement differs for subscribers enrolled in basic-level, mid-level, and top-level services. By computing customer lifetime value and the operating cost of service, we find that email engagement increases profit when deployed on mid-level and top-level subscribers but decreases profit when deployed on basic-level subscribers. Therefore, we recommend the company to deploy email engagement on top-level and mid-level subscribers but not on basic-level subscribers. This selective engagement strategy can increase profit by 3.0%. \u0000 \u0000Managerial Implications: Our study highlights that email engagement is a double-edged sword—it increases both customer retention and service consumption, and it may decrease profitability when the increased operating cost to serve retained customers outweighs the benefit of customer retention. Subscription-based service providers need to adopt a data-driven approach to optimize their email engagement strategies.","PeriodicalId":226335,"journal":{"name":"POL: Profit Maximization (Topic)","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131478572","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Multi-Product Duopoly with Cross-Product Cost Interdependencies","authors":"Gary Biglaiser, Andrei Hagiu","doi":"10.2139/ssrn.2634175","DOIUrl":"https://doi.org/10.2139/ssrn.2634175","url":null,"abstract":"Many multi-product firms incur a complexity fixed cost when offering different product lines in different quality tiers relative to the case when offering all products lines in the same quality tier (high or low). Such fixed costs create an interdependency between firms' choices of quality tiers across different product lines, even when demands are independent. We investigate the effects of this interdependency on equilibrium profits in a Stackelberg duopoly game. Both firms' profits are (weakly) higher when the complexity cost is infinite than when it is 0. The Stackelberg leader's profits are always (weakly) higher with a positive complexity fixed cost, but its profits can be non-monotonic in the magnitude of this cost. The Stackelberg follower's profits can be lower when the complexity fixed cost is positive than when it is equal to 0.","PeriodicalId":226335,"journal":{"name":"POL: Profit Maximization (Topic)","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114271919","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Sourcing Strategies of a Multi-Input-Multi-Product Firm","authors":"M. Kopel, Clemens Löffler, T. Pfeiffer","doi":"10.2139/ssrn.2363831","DOIUrl":"https://doi.org/10.2139/ssrn.2363831","url":null,"abstract":"Firms commonly manufacture multiple products using multiple complementary inputs. The multi-input-multi-product environment generates interactions among products yielding the following results for the firm's sourcing strategies: (i) A multi-input-multi-product firm might optimally deviate from an isolated least-cost comparison, i.e. might produce in-house even if marginal in-house production cost exceeds the per-unit input price (and vice versa). Such a deviation can be optimal even if the input supplier can engage in price discrimination and can condition its input prices on the individual products that the firm manufactures. (ii) An outsourcing wave can arise in that concurrently outsourcing all inputs can be profitable for the firm even though outsourcing each input individually is unprofitable. (iii) More competition on the supplier market can decrease the multi-input-multi-product firm's profit.","PeriodicalId":226335,"journal":{"name":"POL: Profit Maximization (Topic)","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-12-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132713580","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}