The article reviews the book “Information Rules: A Strategic Guide to the Network Economy,” by Carl Shapiro and Hal R. Varian.

Information Rules: A Strategic Guide to the Network Economy

We consider a supply chain with a retailer and a supplier: A newsvendor-like retailer has a single opportunity to order a product from a supplier to satisfy future uncertain demand. Both the retailer and supplier are capital constrained and in need of short-term financing. In the presence of bankruptcy risks for both the retailer and supplier, we model their strategic interaction as a Stackelberg game with the supplier as the leader. We use the supplier early payment discount scheme as a decision framework to analyze all decisions involved in optimally structuring the trade credit contract (discounted wholesale price if paying early, financing rate if delaying payment) from the supplier's perspective. Under mild assumptions we conclude that a risk-neutral supplier should always finance the retailer at rates less than or equal to the risk-free rate. The retailer, if offered an optimally structured trade credit contract, will always prefer supplier financing to bank financing. Furthermore, under optimal trade credit contracts, both the supplier's profit and supply chain efficiency improve, and the retailer might improve his profits relative to under bank financing (or equivalently, a rich retailer under wholesale price contracts), depending on his current “wealth” (working capital and collateral).

Financing the Newsvendor: Supplier vs. Bank, and the Structure of Optimal Trade Credit Contracts

We study the problem of information sharing in a supply chain with two competing manufacturers selling substitutable products through a common retailer. Our analysis shows that the retailer’s incentive to share information strongly depends on nonlinear production cost, competition intensity, and whether the retailer can offer a contract to charge a payment for the information. Without information contracting, the retailer has an incentive to share information for free when production economy is large but has no incentive to do so when there is production diseconomy. With information contracting, the retailer has an incentive to share information when either production diseconomy/economy is large or competition is intense. We characterize the conditions under which the retailer shares information with none, one, or both of the manufacturers. We also show that the retailer prefers to sell information sequentially rather than concurrently to the manufacturers, whereas the manufacturers’ preferences are rever...

Information sharing in a supply chain with a common retailer

The mirroring hypothesis predicts that organizational ties within a project, firm, or group of firms (e.g. communication, collocation, employment) will correspond to the technical patterns of dependency in the work being performed. A thorough understanding of the phenomenon is difficult to achieve because relevant work is scattered across multiple fields. This paper presents a unified picture of mirroring in terms of theory, evidence and exceptions. First, we formally define mirroring and argue that it is an approach to technical problem-solving that conserves scarce cognitive resources. We then review 142 empirical studies, divided by organizational form into (1) industry studies; (2) firm studies; and (3) studies of open collaborative projects. The industry and firm studies indicate that mirroring is a prevalent pattern but not universal. However, there is evidence of a mirroring ‘trap’: firms focused on the current technical architecture may fall victim to architectural innovations arising outside their boundaries. Thus in technologically dynamic industries, partial mirroring, where knowledge boundaries are drawn more broadly than operational boundaries, is likely to be a superior strategy. Firms can also strategically ‘break the mirror’ in two ways: by implementing modular partitions within their own boundaries; or by building relational contracts that support technical interdependency across their boundaries. Finally, in contrast to industry and firm studies, studies of open collaborative projects, most of which focused on software, were not supportive of the hypothesis. We argue that these contradictory results arise because digital technologies make possible new modes of coordination that enable groups to deviate from classical mirroring as seen within firms. This working paper includes Appendix A, which describes our detailed findings by category. Appendix B, a tabular summary of the 142 studies in our sample, is available on request from the authors.

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The Mirroring Hypothesis: Theory, Evidence and Exceptions

Despite the importance of social impact to social entrepreneurship research, standards for measuring an organization’s social impact are underdeveloped on both theoretical and empirical grounds We

/pdf/social-impact-measurement-current-approaches-and-future-15afzya4pk.pdf

Social Impact Measurement: Current Approaches and Future Directions for Social Entrepreneurship Research:

We consider a supply chain where a contract manufacturer (CM) serves a number of original equipment manufacturers (OEMs). Investment into productive resources is made before demand realization, hence the supply chain faces the risk of under-or overinvestment. The CM and OEMs differ in their forecast accuracy and in their resource pooling capabilities, leading to a disparity in their ability to minimize costs due to demand uncertainty. We consider two scenarios in which this risk is borne by the OEM and CM, respectively. We determine which party should bear the risk so that maximum supply chain profits are achieved. We investigate the effectiveness of premium-based schemes in inducing the best party to bear the risk, and conclude that they function well despite information asymmetry when double marginalization is not very high.

Risk Ownership in Contract Manufacturing

In this paper, we examine the suggested link between product architecture (i.e., the extent to which a product is modular vs. integral) and supply chain configuration (i.e., whether the product development is done internally by the manufacturer in an integrated supply chain or in collaboration with a supplier in a decentralized supply chain). Our model suggests that the choice of product architecture depends on firm, market, and product characteristics in addition to supply chain structure. In contrast to other studies, we find that the optimal mapping from architecture to supply chain structure is not always one-to-one. A decentralized supply chain may be associated with a more integral product when the technical collaboration penalty is not excessive and suppliers have significantly superior product development capabilities. Furthermore, in a decentralized supply chain, the nature of the relationship between the original equipment manufacturer and its supplier (adversarial or collaborative) plays a role in the choice of product architecture: modular architectures are more likely when the parties have adversarial relationships, while long-term trust-based relationships facilitate more integral product architectures.

Matching Product Architecture and Supply Chain Configuration

Modular upgradability has been suggested as a strategy for improving environmental performance: As technology improves, it allows for independent replacement of improving subsystems, instead of replacing the entire product. This may extend the useful life of the stable subsystems, reducing production and disposal impact. However, this argument ignores the effect of modular upgradability on a firm's development and introduction decisions, which influence how and when product improvements are introduced, making existing products obsolete. This argument also ignores the environmental impact during the use phase. In this paper, we investigate when modular upgradability leads to lower environmental impact and higher profits. We do so by endogenizing a firm's development and introduction decisions and considering the product's environmental impact during its entire life cycle. Our results show that while modular upgradability may accelerate the replacement of some subsystems, it delays the replacement of other subsystems. We find that modular upgradability can increase the environmental impact for some product categories due to accelerated obsolescence arising from more frequent introduction and replacement. However, we also find that accelerated obsolescence, under some conditions, can actually make modular upgradability greener.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2026100_code1325201.pdf?abstractid=1850705&mirid=2

The Role of Modular Upgradability as a Green Design Strategy

Modular upgradability has been suggested as a strategy for improving environmental performance: as technology improves, it allows for independent replacement of improving subsystems, instead of replacing the entire product. This may extend the useful life of stable subsystems, reducing production and disposal impact. However, this argument ignores the effect of modular upgradability on a firm's development and introduction decisions and the environmental impact during the use phase. In this paper, we investigate when modular upgradability leads to lower environmental impact and higher profits. We do so by endogenizing a firm's development and introduction decisions and considering the product's environmental impact during its entire life cycle. Our results show that although modular upgradability may accelerate the replacement of some subsystems, it delays the replacement of others. We find that modular upgradability can increase the environmental impact for some product categories due to accelerated obsolescence arising from more frequent introduction and replacement. However, we also find that accelerated obsolescence, under some conditions, can actually make modular upgradability greener.

Although product modularity is often advocated as a design strategy in the operations management literature, little is known about how consumers respond to modular products. In this research we undertake several experiments to explore consumer response to modularly upgradeable products in settings featuring technological change. We consider both the initial product choice (between a modularly upgradeable product and an integral one) and the subsequent upgrade decision (replacement of a module versus full product replacement). First, we show that consumers tend to discount the cost savings associated with modular upgrades excessively (insufficiently) when the time between the initial purchase and the upgrade is short (long). This suggests that modular upgradability as a product feature has higher profit potential for slowly rather than rapidly improving products. Second, we observe a preference reversal between the initial purchase and the point of upgrade: At the point of initial purchase, people foresee making a full product replacement in the future, yet, when faced with the actual upgrade decision, they are more likely to revert to modular upgrades. Finally, we discuss and test several pricing and product design strategies that the firm can use to respond to these cognitive biases.

This paper was accepted by Kamalini Ramdas, entrepreneurship and innovation.

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Papers

Risk Ownership in Contract Manufacturing

Matching Product Architecture and Supply Chain Configuration

The Role of Modular Upgradability as a Green Design Strategy

The Role of Modular Upgradability as a Green Design Strategy

Consumer Valuation of Modularly Upgradeable Products