Open Source Development with a Commercial Complementary Product or Service

We examine optimal control decisions regarding pricing, network size, and hiring strategy in the context of open source software development. Opening the source code to a software product often implies that consumers would not pay for the software product itself. However, revenues may be generated from complementary products. A software firm may be willing to open the source code to its software if it stands to build a network for its complementary products. The rapid network growth is doubly crucial in open source development, in which the users of the firm's products are also contributors of code that translates to future quality improvements. To determine whether or not to open the source, a software firm must jointly optimize prices for its various products while simultaneously managing its product quality, network size, and employment strategy. Whether or not potential gains in product quality, network size, and labor savings are sufficient to justify opening the source code depends on product and demand characteristics of both the software and the complementary product, as well as on the cost and productivity of in‐house developers relative to open source contributors. This paper investigates these crucial elements to allow firms to reach the optimal decision in choosing between the open and closed source models.     

Increasing Revenue by Decreasing Information in Procurement Auctions

We report on results of several laboratory experiments that investigate on‐line procurement auctions in which suppliers bid on price, but exogenous bidder quality affects winner determination. In procurement auctions, bidder quality may or may not be publicly known to all bidders, and the effect of this quality transparency on the auction outcome is one aspect of auction design that we examine. The second aspect of auction design that we examine is the effect of price visibility on the auction outcome, and the interaction between price visibility and quality transparency. In terms of price visibility, we consider two extreme cases: the sealed bid request for proposals (RFPs), and the open‐bid dynamic auction event. In terms of bidder quality transparency, we also consider two extreme cases: a setting in which bidder qualities are publicly known and the case in which they are private. We find that in our laboratory experiments, the RFP format is consistent in generating higher buyer surplus levels than does the open‐bid dynamic format. This advantage is independent of the quality transparency. In contrast, the open‐bid format is highly sensitive to quality transparency, generating significantly lower buyer surplus levels when the information about bidder quality is public.     

The Medium Prizes Paradox: Evidence From a Simulated Casino

Mainstream explanations to gambling specify conditions under which human agents are locally risk loving. Such theories, however, fail to explain the typically observed prize distribution of a few large prizes and a large number of medium ones—hence the medium prizes paradox. In the current study we show that adaptive learning models recently proposed in the literature offer a solution. Simulations of such models predict that multiple medium prizes will slow down the decrease (over time) in agents' inclination to gamble. We run a laboratory experiment that supports this explanation and shows that the positive effect of medium prizes on the inclination to gamble increases with time.     

Does Higher Transparency Lead to More Search in Online Auctions?

In a controlled field experiment, we examine pairs of auctions for identical items under different conditions. We find that auction design features that are under the control of the auctioneer—including information transparency, number of simultaneous auctions, and the degree of overlap between simultaneous auctions—affect bidder search and choice. Clickstream data show that a significant relationship between information transparency and price dispersion can be linked to search. Specifically, the effect of information transparency on price dispersion is fully mediated by lookup behavior. Combining these findings, we make auction design recommendations regarding the provision of product and value information.     

THE RELIGIOUS OBSERVANCE OF RAMADAN AND PROSOCIAL BEHAVIOR

We investigate experimentally the impact on prosocial behavior of the religious observance of Ramadan. Our sample consists of male factory workers in a manufacturing facility in a Muslim country. In our between‐subjects' design, each worker is asked to allocate an amount of money between himself and a stranger. Specifically, we examine behavior of observants and nonobservants before and after the daily break of the Ramadan fast. We also examine behavior outside of Ramadan, where we treat alimentary abstention as akin to a long fasting period. We hypothesize and confirm that outside Ramadan, decision makers who abstain from any alimentary intake transfer less money to recipients relative to decision makers who do not abstain. Strikingly, this effect is reversed during the month of Ramadan. Specifically, observant workers who are in the midst of their Ramadan fast are far more generous to recipients than workers who have had their evening meal. Interestingly, observant and nonobservant workers after the daily break of the Ramadan fast and workers outside Ramadan that consumed aliments make statistically similar transfers. Our findings suggest that it is the interaction between alimentary abstention and religious observance that amplifies prosocial behavior during Ramadan, where fasting is part of the ritual. (JEL C91, C93, C72)