An emerging market or market segment provides firms both the opportunity to enter early and capture market share and also the risk that the market will turn out to be less fruitful than expected. We formulate and analyze a game-theoretic model in which multiple firms with uncertain and/or disparate beliefs about the eventual market size decide whether to enter such a market. For increasingly general models, we show that the structure (i.e. the number and identity of participating firms) and profitability of equilibrium oligopolies can be determined by a classification schemes based on the firms' beliefs about the viable level of market concentration. This scheme is adapted to random forecasts (i.e. forecasts expressed as probability distributions) as well as point forecasts. This study was motivated by managerial issues encountered by a client firm engaged in semiconductor design.

Upgrades are endemic in the software industry and create the possibility that customers might either postpone purchase or buy early on and never upgrade: When will a customer upgrade? Is it better to upgrade now or to wait for an improved version? When should we release an improved product? How much should we charge for each version? Should we give discounts on upgrades to existing customers? Will today’s sales be cannibalized by the anticipated improved version? We focus on pricing and how it is affected by the degree to which a product is improved between versions. In particular, we are interested how the firm should price different versions of its product and whether it should offer “upgrade discounts” to existing customers. To address these issues, we analyze a two-period model in which a firm sells an initial version of its product in the first period and an improved version the second. In each period, the firm (i.e., the software supplier) selects the selling prices, and customers decide whether to purchase. Customers may purchase the product in either or both periods and, at the firm's discretion, are given a discounted price if they repurchase/upgrade in the second period. We solve this model for subgame perfect equilibrium prices and purchasing decisions and investigate how equilibrium prices, profits, and cash flows are influenced by the degree of product improvement. We also uncover a number of managerial insights; for example, equilibrium pricing induces all of the first period purchasers to upgrade to the improved product in the second period.

We analyze and compare fixed-fee and usage-fee software pricing schemes - in fixed-fee pricing, all users pay the same price; in usage-fee pricing, the users’ fees depend on the amount that they use the software (e.g., the user of an online-database service might be charged for each data query). We employ a two-dimensional model of customer heterogeneity - specifically, we assume that customers vary in the amount that they will use the software (usage heterogeneity) and also in their per-use valuation of the software.

To understand the performance of these pricing schemes and their sensitivity to the competitive environment in which they are used, we look at a number of different scenarios: a monopolist offering just one of these schemes, a monopolist offering a choice of pricing schemes, and several duopoly scenarios. We characterize and compare the equilibria that arise in these scenarios and provide insights into optimal pricing strategies.

In this paper, we analyze the contracting issues that arise in collaborative services, such as consulting, financial planning, and IT outsourcing. Analyzing first a bilateral relationship, we assume that neither the buyer's nor the vendor's efforts are directly observable, resulting in double moral hazard. We investigate the efficiency of fixed-fee, time-and-materials, and performance-based contracts. We find that fixed-fee contracts are the least responsive to unplanned contingencies, time-and-material contracts are associated with high monitoring costs, and performance-based contracts do not incentivize agents to exert high levels of effort. We then show that our results are robust with respect to the number of vendors involved in the joint production process. On the other hand, the involvement of multiple buyers in the joint-production process creates an additional negative externality, akin to free riding, unless the vendor prescribes all buyers' actions. Our model highlights the trade-offs underlying the choice of contracts in a collaborative service environment and identifies service process design changes that improve contract efficiency.