Risk-Aversion and B2B Contracting under Asymmetric Information: Evidence from Managed Print Services

51 Pages Posted: 16 Jul 2013 Last revised: 4 Jun 2017

See all articles by Jie Ning

Jie Ning

Case Western Reserve University - Weatherhead School of Management

Volodymyr Babich

McDonough School of Business, Georgetown University

John Handley

Xerox Corp.

Jussi Keppo

National University of Singapore - NUS Business School

Date Written: June 3, 2017

Abstract

Managed print service (MPS) is a type of IT infrastructure service that provides centralized management of companies' printing device fleets. In this paper, we estimate the provider's risk preference in MPS using a proprietary data set from Xerox Corporation. We adopt a structural approach in our empirical analysis by modeling the contracting and usage processes of MPS as a two-stage screening game and building econometric models based on the equilibrium contracts and print volumes. Our econometric models have a unique hierarchical structure that allows clustering of printers with the same contracts in the same company, thereby capturing the B2B nature of MPS. We find that Xerox exhibits risk-aversion in MPS contracting, and provide institutional details of Xerox's commission holdback policy that may cause the observed risk-aversion. In the counterfactual analysis, we demonstrate the significance of the provider's risk-aversion and the implications of the commission holdback policy on equilibrium contracts, the expected earnings of Xerox and customer companies, and their preferences for printer models.

Keywords: Risk-aversion, structural estimation, asymmetric information, Business-to-business (B2B), IT infrastructure services

JEL Classification: C51, D81, D82

Suggested Citation

Ning, Jie and Babich, Volodymyr and Handley, John and Keppo, Jussi, Risk-Aversion and B2B Contracting under Asymmetric Information: Evidence from Managed Print Services (June 3, 2017). Available at SSRN: https://ssrn.com/abstract=2293923 or http://dx.doi.org/10.2139/ssrn.2293923

Jie Ning (Contact Author)

Case Western Reserve University - Weatherhead School of Management ( email )

Department of Operations
11119 Bellflower Rd
Cleveland, OH 44106
United States

Volodymyr Babich

McDonough School of Business, Georgetown University ( email )

3700 O Street, NW
Washington, DC 20057
United States

John Handley

Xerox Corp. ( email )

3333 Coyote Hill Road
Palo Alto, CA 94304-1314
United States

Jussi Keppo

National University of Singapore - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

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