The paper presents a multidimensional (MD) approach to recommender systems that can provide recommendations based on additional contextual information besides the typical information on users and items used in most of the current recommender systems. This approach supports multiple dimensions, extensive profiling, and hierarchical aggregation of recommendations. The paper also presents a multidimensional rating estimation method capable of selecting two-dimensional segments of ratings pertinent to the recommendation context and applying standard collaborative filtering or other traditional two-dimensional rating estimation techniques to these segments. A comparison of the multidimensional and two-dimensional rating estimation approaches is made, and the tradeoffs between the two are studied. Moreover, the paper introduces a combined rating estimation method that identifies the situations where the MD approach outperforms the standard two-dimensional approach and uses the MD approach in those situations and the standard two-dimensional approach elsewhere. Finally, the paper presents a pilot empirical study of the combined approach, using a multidimensional movie recommender system that was developed for implementing this approach and testing its performance.2

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C onsumer-generated media, particularly blogs, can help companies increase the visibility of their products without spending millions of dollars in advertising. Although a number of companies realize the potential of blogs and encourage their employees to blog, a good chunk of them are skeptical about losing control over this new media. Companies fear that employees may write negative things about them and that this may bring significant reputation loss. Overall, companies show mixed response toward negative posts on employee blogssome companies show complete aversion; others allow some negative posts. Such mixed reactions toward negative posts motivated us to probe for any positive aspects of negative posts. In particular, we investigate the relationship between negative posts and readership of an employee blog. In contrast to the popular perception, our results reveal a potential positive aspect of negative posts. Our analysis suggests that negative posts act as catalyst and can exponentially increase the readership of employee blogs, suggesting that companies should permit employees to make negative posts. Because employees typically write few negative posts and largely write positive posts, the increase in readership of employee blogs generally should be enough to offset the negative effect of few negative posts. Therefore, not restraining negative posts to increase readership should be a good strategy. This raises a logical question: what should a firm's policy be regarding employee blogging? For exposition, we suggest an analytical framework using our empirical model.

When an improvable durable good (such as packaged software) saturates the market, the seller could be tempted to release new versions too frequently, hurting her profit. A novel contractual device, which I term as a Free New Version Rights warranty (free NVR warranty), can help the seller overcome this temptation. In a two-period game-theoretic model involving a monopolist firm facing heterogeneous consumers, I derive conditions under which a rational monopolist can act suboptimally: She could face a commitment problem and offer the new version, even if doing so lowers her overall profit. Profit is hurt because when consumers expect a new version, (a) fewer consumers buy the initial version, and (b) the monopolist is forced to charge a lower price for the initial version. I show how the free NVR warranty, which requires the monopolist to offer consumers the right to receive the new version for free for a limited period, can solve her commitment problem. This is a new, surprising finding: By bundling new-version rights with the initial version, the monopolist at first appears to be denying herself future revenue. I derive conditions under which this apparently unprofitable action is optimal, which is my main contribution. When free NVR is offered, consumer surplus decreases and social surplus increases. This work extends prior literature on durable goods and the Coase conjecture to innovative durable goods with network externalities. The findings have important practical implications for firms selling new versions of innovative durable goods subject to network effects, as well as for their consumers.high-tech marketing, game theory, innovation, marketing strategy, product development, product life cycles, product policy, signaling

T he introduction of product upgrades in a competitive environment is commonly observed in the software industry. When introducing a new product, a software vendor may employ behavior-based price discrimination (BBPD) by offering a discount over its market price to entice existing customers of the competitor. This type of pricing is referred to as competitive upgrade discount pricing and is possible because the vendor can use proof of purchase of a competitor's product as credible evidence to offer the discount. At the same time, the competitor may offer a discount to its own previous customers in order to induce them to buy its upgrade. We formulate a game-theoretic model involving an incumbent and entrant where both firms can offer discounts to existing customers of the incumbent. Although several equilibrium possibilities exist, we establish that an equilibrium with competitive upgrade discount pricing is observed only for a unique market structure and a corresponding unique set of prices. In this equilibrium, instead of leveraging its first mover advantage, the incumbent cedes market share to the entrant. Furthermore, the profits of both the incumbent and the entrant reduce with switching costs. This implies that the use of BBPD has product design implications because firms may influence the switching costs between their products by making appropriate compatibility decisions. In addition, lower switching costs result in reduced consumer surplus. Hence, a social planner may want to increase switching costs. The resulting policy implications are different from those prevalent in other industries such as mobile telecommunications where the regulators reduced switching costs by enforcing number portability.

Keyword-based ads are becoming the dominant form of advertising online as they enable customization and tailoring of messages relevant to potential consumers. Two prominent channels within this sphere are the search network and the content network. We empirically examine the interaction between these two channels. Our results indicate significant cannibalization across the two channels, as well as significant diminishing returns to impressions within each channel. This suggests that under certain conditions, both channels may need to be used to optimize returns to advertising, both for advertisers and service providers such as Google. Our game theoretic analysis reveals that for intermediate budget values, it is optimal to use both channels, whereas for very low (very high) budget values, it is optimal to use only the content (search) channel. Further, as budget increases, the advertiser should offer more for ads displayed on the search network to optimally incentivize the service provider.

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Abstract. We study how electronic markets that facilitate broader inter-firm transactions affect the vertical scope of emerging IT-enabled extended enterprises. We do so by modeling firms in a three-tier value chain who are each connected to a common electronic market that facilitates direct business transactions across tiers, and that lowers the search costs associated with finding an appropriate trading partner for each of them. The extent to which search costs are reduced depends on the complexity of B2B search, and the nature of the supporting technologies that the electronic market facilitates. Variation in search costs affect firms across the value chain in three key ways: by a change in the transaction costs of interaction between firms; by a change in the contracting costs associated with outsourcing owing to changes in the costs of moral hazard for delegated search, and by a change in the price dispersion of upstream input commodities. We capture each of these effects in a new model that integrates search theory into the principal-agent framework, and establish that the optimal outsourcing contract has a simple "all or nothing" performance-based structure under fairly general assumptions. We then apply this model to contrast the effect that different information technologies have on the relative B2B search costs of different firms in the value chain, contrasting the predicted changes of proportionate, constant and convergent changes in search costs. When integrated with a detailed analysis of the nature of B2B search, these results predicts that when B2B search is information-intensive, electronic markets will facilitate an increase in outsourcing, market-based transactions and a reduction in the vertical scope of extended enterprises. In contrast, when B2B search is primarily communication-intensive, electronic markets will lead to tighter integration and an increase in the vertical scope of the extended enterprise. Our research suggest that the nature of the information technologies and of the business activities supported by an electronic market are crucial determinants of the organizational and industry changes they induce, and our results have important implications for a variety of industries in which both technological and agency issues will influence the eventual success of global IT-facilitated extended enterprise initiatives. 0 We thank