Nault, B. R., & Zimmermann, S. (2019). Balancing openness and prioritization in a two-tier Internet. Information Systems Research, 30(3), 745-763. doi: 10.1287/isre.2018.0828  PDF (last version of working paper)

The open Internet is plagued by congestion that restricts the development of sophisticated Internet-based services as was predicted in early work on priority pricing. Broadband and edge providers have proposed a two-tier Internet with fee-based prioritization of traffic in a fast-lane Internet that coexists with the open Internet to overcome these problems. This requires a restriction of Internet openness, also known as network neutrality, in the fast-lane Internet. Opponents of a two-tier Internet believe it would hinder innovation, motivate underinvestment in Internet infrastructure and consequently reduce the quality of service (QoS) of the open Internet. The challenge is for policy to balance a fee-based fast-lane for priority traffic and safeguard the viability of the open Internet. In our model, edge providers choose output levels and which Internet to use, a broadband provider chooses investment in Internet capacity and pricing for prioritizing traffic in the fast-lane, and a policy-maker chooses a mechanism for balancing openness and prioritization in a two-tier Internet. We find that edge providers with greater bandwidth requirements per unit of output convert to the fast-lane and that the fast-lane can drive innovation from edge providers with high bandwidth requirements. The broadband provider chooses fixed fee pricing for the fast-lane but has no incentive to increase investment in Internet capacity as long as the open Internet is not monetized. So long as there are no investments in Internet capacity, all edge providers of the open Internet and their end users are worse off with a two-tier Internet. To maintain the QoS of the open Internet and to increase social welfare, a two-tier Internet has to be coupled with a policy mechanism whereby a portion of broadband provider profit is invested in Internet capacity.

Ba, S., & Nault, B. R. (2017). Emergent themes in the interface between economics of information systems and management of technology. Production and Operations Management, 26(4), 652-666. doi: 10.1111/poms.12644 PDF (last version of working paper)

In this article we look at research published over a five-year time span in the economics of information systems (IS) area in four premier journals, including Management Science, Information Systems Research, MIS Quarterly, and Production and Operations Manage- ment, to identify research themes that have implications for future research in the area of Management of Technology (MOT). Through our examination of the literature, we identify three emergent themes that can be used to form foundations for future MOT research from an economics of IS perspective: productivity, vertical relations, and platforms. Within each of these themes we classify previous research into subthemes, summarize the major find- ings, and explore future research opportunities within the MOT domain that are relevant to these subthemes. Specifically, we examine how information technology has impacted firm pro- ductivity, their product design and development process, innovation capabilities, knowledge management capabilities, and supply chain integration.

Levi, M. D., & Nault, B. R. (2004). Converting technology to mitigate environmental damage. Management Science, 50(8), 1015-1030. doi: 10.1287/mnsc.1040.0238 PDF

There are many situations where policy makers would like to induce firms to make a major discrete conversion in production technology to help the environment. This paper examines how heterogeneity in the operating condition of firms’ plant and equipment, which cannot be observed by policy makers, can affect the choice between incentives to encourage conversion to a cleaner technology. By relating different conditions of firms’ plant and equipment to production costs, extent of environmental damage, and cost of conversion to a cleaner technology, we show when a perfectly discriminating incentive to encourage conversion is not feasible. In addition, we show that firms with plant and equipment in better condition will convert their technology to mitigate their environmental damage, and firms with plant and equipment in poorer condition will not. This and a series of additional results lead to conditions under which an administratively simple uniform lump-sum incentive to switch to cleaner technology is preferable to one based on output. These results and conditions extend to cases where there are network externalities in conversion, and where there is strategic timing in firms’ choice of when to convert.

Nault, B. R., & Vandenbosch, M. B. (2000). Disruptive technologies—Explaining entry in next generation information technology markets. Information Systems Research, 11(3), 304-319. doi: 10.1287/isre.11.3.304.12208 PDF

The most difficult challenge facing a market leader is maintaining its leading position. This is especially true in information technology and telecommunications industries, where multiple product generations and rapid technological evolution continually test the ability of the incumbent to stay ahead of potential entrants. In these industries, an incumbent often protects its position by launching prematurely to retain its leadership. Entry, however, happens relatively frequently. We identify conditions under which an entrant will launch a next generation product thereby preventing the incumbent from employing a protection strategy. We define a capabilities advantage as the ability to develop and launch a next generation product at a lower cost than a competitor, and a product with a greater market response is one with greater profit flows. Using these definitions, we find that an incumbent with a capabilities advantage in one next generation product can be overtaken by an entrant with a capabilities advantage in another next generation product only if the entrant’s capabilities advantage is in a disruptive technology that yields a product with a greater market response. This can occur even though both next generation products are available to both firms. We also show that the competition may require the launching firm to lose money at the margin on the next generation product.

Nault, B. R., & Vandenbosch, M. B. (1996). Eating your own lunch: Protection through preemption. Organization Science, 7(3), 342-358. (Reprinted as Chapter 8 in Managing in Times of Disorder, A. Ilinitch, A. Lewin, and R. D'Aveni, eds., SAGE Publications: Thousand Oaks, 1998, 171-206) doi: 10.1287/orsc.7.3.342   PDF  

Recent discussions of management practices among successful high-technology companies suggest that in intensely competitive, or hypercompetitive, markets, firms with a leading position should aggressively cannibalize their own current advantages with next-generation advantages before competitors step in to steal the market. Given the pace of technological and other types of change, such strategy often requires creating next-generation advantages while the current advantages are still profitable - that is, trading current profits for future market leadership.

Nault, B. R. (1996). Equivalence of taxes and subsidies in the control of production externalities. Management Science, 42(3), 307-320. (Citation of Excellence: ANBAR Electronic Intelligence) doi: 10.1287/mnsc.42.3.307 (Citation of Excellence: ANBAR Electronic Intelligence)  PDF

The equivalence between taxes and subsidies in the control of negative production externalities is studied. In the models, under the tax regime, firms that take no treatment action to mitigate the damage caused by their negative externalities are punished, whereas under the subsidy regime, firms are rewarded for externality treatment activities. A formulation is employed where firms differ in the vintage of their production technology and as a result differ in profitability, negative externality generation, and the cost of treatment. Three measures are considered as policy objectives: total output, total damage from negative externalities, and social welfare. Reasonable conditions are found where, with an appropriate setting of uniform lump-sum and unit subsidies, the policy maker can achieve a pair of policy objectives equivalent to those obtained using unit taxes. Thus, either tax or subsidy regimes can be used to achieve desired levels of one or two policy objectives, allowing other factors such as fairness, equity, or international trade issues to be considered in policy selection.