XUANMING SU, University of California, Berkeley - Haas School of Business
Email: xuanming@haas.berkeley.edu
FUQIANG ZHANG, University of California, Irvine - Paul Merage School of Business
Email: fzhang@uci.edu

This paper studies the role of product availability in attracting consumer demand. We start with a newsvendor model, but additionally assume that consumers must incur some search cost in order to visit the seller. The seller sets an observable price and an unobservable stocking quantity. Consumers anticipate the likelihood of stockout and determine whether to visit the seller. We characterize the rational expectations (RE) equilibrium in this game. We show that the seller can improve profits by providing inventory information (i.e., the seller makes the stocking quantity publicly observable) or availability guarantees (i.e., the seller promises to compensate consumers in the event of stockout). Interestingly, the seller has an incentive to over-compensate consumers during stockouts, relative to the first-best benchmark under which social welfare is maximized. We find that first-best outcomes do not arise in equilibrium, but can be supported when the seller uses a combination of inventory information and availability guarantees. Finally, we examine the robustness of these conclusions by extending our analysis to accommodate heterogeneous consumer valuations.

VINEET KUMAR, Carnegie Mellon University
RAHUL TELANG, Carnegie Mellon University - H. John Heinz III School of Public Policy and Management
Email: rtelang@andrew.cmu.edu
TRIDAS MUKHOPADHYAY, Carnegie Mellon University - David A. Tepper School of Business
Email: TRIDAS@ANDREW.CMU.EDU

Information security is growing to be an IT priority for many firms, but several critical dimensions of enterprise security like type of loss or strategic effects of countermeasures have received little attention in the economics-based literature. We develop a model of a contagious threat that can attack multiple divisions of a firm's enterprise network and cause both availability and confidentiality losses. Firms commonly deploy countermeasures to mitigate the harmful effects of threats. Such deployment is complicated by the CIO's lack of information on the information systems of the divisions and due to the differing goals of division managers. In this setting, we model the business process and interconnectivity requirements of the enterprise and demonstrate how to optimally design the security architecture, which consists of protection, recovery and cryptographic measures. We evaluate commonly suggested mechanisms like subsidies and liability and find that they are inadequate as well as informationally demanding. To remedy these problems which directly impact practitioners, we derive mechanisms that have no ex-post informational requirements and are easily implementable for both availability and confidentiality losses. Some of our results are counterintuitive, notably that countermeasure can be overdeployed by division managers and that having a single platform for all divisions can decrease unexpected confidentiality losses.

URS GASSER, Harvard University - Berkman Center for Internet & Society, University of St. Gallen
Email: ugasser@cyber.law.harvard.edu
JOHN G. PALFREY, Harvard University - Berkman Center for Internet & Society
Email: jpalfrey@law.harvard.edu

This report - representing one of three case studies that are part of a transatlantic research project aimed at exploring the potential relation between ICT Interoperability and eInnovation - examines issues surrounding DRM interoperability within the context of music content. Recognizing that interoperability will likely be defined differently by different stakeholders, we begin by establishing a rough, holistic working definition of interoperability and then assess the implementation of DRM in the music content market and associated problems with regard to interoperability. We then go on to explore the technological, market, and legal environments in their relation to and impact upon the achievement of interoperable DRM systems. In part 2, we analyze potential benefits and drawbacks of an interoperable DRM environment for the music content market. We then evaluate both private and public-initiated approaches towards the accomplishment of interoperability using a series of qualitative benchmarks. Lastly, we conclude by summing up the merits and demerits of the various approaches. Our findings lead us to surmise that normative considerations weigh in favor of greater interoperability in general. The challenge of determining the optimal level of interoperability and the best approach for attaining it, however, points toward consideration of a number of complex factors. We conclude that the best way to determine the optimal level of interoperability and means of accomplishing it is to rely upon economic-based assessments on a case-by-case basis.

FANG WU, HP Labs
Email: fang.wu@hp.com
BERNARDO A. HUBERMAN, Hewlett-Packard Laboratories
Email: huberman@hpl.hp.com

We analyze the role that popularity and novelty play in attracting the attention of users to dynamic websites. We do so by determining the performance of three different strategies that can be utilized to maximize attention. The first one prioritizes novelty while the second emphasizes popularity. A third strategy looks myopically into the future and prioritizes stories that are expected to generate the most clicks within the next few minutes. We show that the first two strategies should be selected on the basis of the rate of novelty decay, while the third strategy performs sub-optimally in most cases. We also demonstrate that the relative performance of the first two strategies as a function of the rate of novelty decay changes abruptly around a critical value, resembling a phase transition in the physical world.

LUDIVINE MARTIN, Université de Rennes I - CREM - Université Rennes 1
Email: ludivine.martin@univ-rennes1.fr
NATHALIE COLOMBIER, Université de Rennes I - CREM - Université Rennes 1
Email: nathalie.colombier@univ-rennes1.fr
THIERRY PÉNARD, Université de Rennes I - Faculte de Sciences Economiques
Email: thierry.penard@univ-rennes1.fr

The diffusion of Information and Communication Technologies (ICT) within firms induces organizational changes which modify employee perceptions of working conditions. This article aims to evaluate the effects of the use of cell phones, computers and the Internet on job satisfaction, and especially to distinguish between direct effects (due to ICT) and indirect effects (due to ICT combined with organizational changes). We have used a survey conducted by the INSEE (French national statistic institute) in October 2005 on standards of living in French households. Econometric results show that these three technologies have complementary and globally positive impacts on job satisfaction, especially the computer. As for the cell phone, it has ambivalent effects, as it is also a source of stress for the employee. Finally, our results show the existence of direct and indirect effects of ICT, effects which can sometimes cancel out or reinforce each other.

THOMAS D. SYDNOR, Affiliation Unknown
Email: tsydnor@pff.org
LEE HOLLAAR, Affiliation Unknown
Email: hollaar@cs.utah.edu

This report on inadvertent filesharing was released by the authors of Filesharing Programs and Technological Features to Induce Users to Share, a groundbreaking analysis published by the United States Patent and Trademark Office in March of 2007. This new report seeks to enhance understanding of the causes of inadvertent sharing by analyzing (1) recently released data that the distributors of the program LimeWire gave to the House Committee on Oversight and Government Reform before its July 24, 2007 hearing on inadvertent sharing, and (2) the efficacy of efforts to improve the LimeWire program since the Committee's hearing. The authors conclude that law enforcement should investigate whether filesharing programs deliberately perpetuate inadvertent filesharing.

The paper concludes that LimeWire's Response neither identifies material deficiencies in the analysis and conclusions of the USPTO Report nor offers credible, good-faith explanations of why LimeWire deployed five features that were known to cause users to share infringing and sensitive files inadvertently.

The authors also conclude that LimeWire has implemented potentially meaningful changes in ways that repeat past errors and will tend to perpetuate inadvertent sharing by both new and existing users of the LimeWire program.

The results of these two analyses lead the authors to renew the conclusion that they drew in the USPTO Report. State and federal law-enforcement agencies should aggressively investigate to determine whether distributors of popular filesharing programs intended to blunt the deterrent effects of copyright-enforcement lawsuits by duping users of their program into sharing files inadvertently.