Best Selling Books by Erik Brynjolfsson

Price dispersion among commodity goods is typically attributed to consumer search costs. We explore the magnitude of consumer search costs using a data set obtained from a major Internet shopbot. For the median consumer, the benefits to searching lower screens are $2.24 while the cost of an exhaustive search of the offers is a maximum of $2.03. Interestingly, in our setting, consumers who search more intensively are less price sensitive than other consumers, reflecting their increased weight on retailer differentiation in delivery time and reliability. Our results demonstrate that even in this nearly-perfect market, substantial price dispersion can exist in equilibrium from consumer non-price attributes. Keywords: Search costs, shopbot, product differentiation, random coefficients choice model.

The Internet has significantly reduced the marginal cost of producing and distributing digital information goods. It also coincides with the emergence of new competitive strategies such as large scale bundling. In this paper, we show that bunding can create "economies of aggregation" for information goods if their marginal costs are very low, even in the absence of network externalities or economies of scale or scope. We find that these economies of aggregation have several important competitive implications: 1. When competing for upstream content, larger bundlers are able to outbid smaller ones. 2. When competing for downstream consumers, the act of bundling information goods makes an incumbent seem "tougher" to single-product competitors selling similar goods. The resulting equilibrium is less profitable for potential entrants, and can discourage entry in the bundler''s markets even when the entrants have a superior cost structure or quality. 3. Conversely, by simply adding an information good to an existing bundle, a bundler may be able to profitaby enter a new market and dislodge an incumbent who does not bundle, capturing most of the market share from the incumbent firm and even driving the incumbent out of business. 4. Because a bundler can potentially capture a large share of profits in new markets, single-product firms may have lower incentives to innovate and create such markets. However, bundlers may have higher incentives to innovate. For most physical goods, which have non-trivial marginal costs, the potential impact of large-scale aggregation is limited. However, we find that these effects can be decisive for the success or failure of information goods. Our results have particular empirical relevance to the markets for software and Internet content.

Information technology can link geographically separated people and help them locate interesting or useful resources. These attributes have the potential to bridge gaps and unite communities. Paradoxically, they also have the potential to fragment interaction and divide groups. Advances in technology can make it easier for people to spend more time on special interests and to screen out unwanted contact. Geographic boundaries can thus be supplanted by boundaries on other dimensions. This paper formally defines a precise set of measures of information integration and develops a model of individual knowledge profiles and community affiliation. These factors suggest specific conditions under which improved access, search, and screening can either integrate or fragment interaction on various dimensions. As IT capabilities continue to improve, preferences - not geography or technology - become the key determinants of community boundaries.

We present a framework and empirical estimates that quantify the economic impact of increased product variety made available through electronic markets. While efficiency gains from increased competition significantly enhance consumer surplus, for instance by leading to lower average selling prices, our present research shows that increased product variety made available through electronic markets can be a significantly larger source of consumer surplus gains. One reason for increased product variety on the Internet is the ability of online retailers to catalog, recommend and provide a large number of products for sale. For example, the number of book titles available at Amazon.com is over 23 times larger than the number of books on the shelves of a typical Barnes & Noble superstore and 57 times greater than the number of books stocked in a typical large independent bookstore. Our analysis indicates that the increased product variety of online bookstores enhanced consumer welfare by $731 million to $1.03 billion in the year 2000, which is between seven to ten times as large as the consumer welfare gain from increased competition and lower prices in this market. There may also be large welfare gains in other SKU-intensive consumer goods such as music, movies, consumer electronics, and computer software and hardware. Keywords: Consumer Surplus, Product Variety, Electronic Markets.

Revolutions in measurement inevitably revolutionize science and practice. Over 300 years ago, Anton van Leeuwenhoek developed a better microscope to verify thread counts on imported carpets. Using this new tool, he discovered microorganisms he called “animalcules” in drops of water and individual blood corpuscles in drops of blood. Biology and medicine have never been the same. Just as the microscope gave rise to the germ theory of disease and the remarkable advances that followed, our new-found ability to observe fine-grained information flows in electronic data portends a revolution in our understanding of information work. Managers who harness this new Digital Lens will uncover a wealth of insights into performance improvement for individuals, teams and organizations - insights that will ultimately affect the economy as a whole. In this article, we draw on our own research, and that of others, to describe tools and techniques for tracking information work in unprecedented detail. The result is a step change in our ability to manage information work and information workers. During the course of our research, we used these tools to uncover lessons for individuals on information novelty, workload and transformation, as well as for organizations on automation, decentralization, and incentives. Perhaps more importantly, this fine-grained view of work provides a toolkit for deriving new lessons, many of which will vary from company to company, but each of which will be grounded in detailed, actionable data.

We test for three-way complementarities among information technology (IT), performance pay, and HR analytics practices. We develop a principal-agent model examining how these practices work together as an incentive system that produces a larger productivity premium when the practices are implemented in concert rather than separately. We assess our model by combining fine-grained data on Human Capital Management (HCM) software adoption over 11 years with detailed survey data on incentive systems and HR analytics practices for 189 firms. We find that the adoption of HCM software is greatest in firms that have also adopted performance pay and HR analytics practices. Furthermore, HCM adoption is associated with a large productivity premium when it is implemented as a system of organizational incentives, but has less benefit when adopted in isolation. The system of three-way complements produces disproportionately greater benefits than pairwise interactions, highlighting the importance of including all three complements. Productivity increases significantly when the HCM systems “go live” but not when they are purchased, which can be years earlier. This helps rule out reverse causality as an explanation for our findings.

The Internet and related information technologies are transforming the distribution of product sales across products, and the effects are likely to grow in coming years. Both the Long Tail and the Superstar effect are manifestations of these changes, yet researchers lack consistent metrics or models for integrating and extending their insights and predictions. In this paper, we begin with a taxonomy of the technological and non-technological drivers of both the Long Tails and Superstars and then define and contrast the key metrics for analyzing these phenomena. While significant research has already been done, the core the paper describes a large and promising set of questions forming a research agenda. Important opportunities exist for understanding future changes in product distribution; its impact on supply chains (including cross-channel competition, competition within the Internet channel, implications for the growth of firms, and the balance of power within the supply chain); implications for pricing, promotion and product design; and ultimately potential effects on society more generally. Our approach provides an introduction to some of the relevant research findings and allows us to identify opportunities for cross-pollination of methods and insights from related research topics.

We examine what drives the diffusion of different types of information through email networks and the effects of these diffusion patterns on the productivity and performance of information workers. In particular, we ask: What predicts the likelihood of an individual becoming aware of a strategic piece of information, or becoming aware of it sooner? Do different types of information exhibit different diffusion patterns, and do different characteristics of social structure, relationships and individuals in turn affect access to different kinds of information? Does better access to information predict an individual''s ability to complete projects or generate revenue? We characterize the social network of a medium sized executive recruiting firm using accounting data on project co-work relationships and ten months of email traffic. We identify two distinct types of information diffusing over this network - ''event news'' and ''discussion topics'' - by their usage characteristics, and observe several thousand diffusion processes of each type of information. We find the diffusion of news, characterized by a spike in communication and rapid, pervasive diffusion through the organization, is influenced by demographic and network factors but not by functional relationships (e.g. prior co-work, authority) or the strength of ties. In contrast, diffusion of discussion topics, which exhibit shallow diffusion characterized by ''back-and-forth'' conversation, is heavily influenced by functional relationships and the strength of ties, as well as demographic and network factors. Discussion topics are more likely to diffuse vertically up and down the organizational hierarchy, across relationships with a prior working history, and across stronger ties, while news is more likely to diffuse laterally as well as vertically, and without regard to the strength or function of relationships. We also find access to information strongly predicts project completion and revenue generation. The effects are economically significant, with each additional ''word seen'' correlated with about $70 of additional revenue generated. Our findings provide some of the first evidence of the economic significance of information diffusion in email networks.

Internet consumers derive significant surplus from increased product variety, and in particular, the “Long Tail” of niche products that can be found on the Internet at retailers like Amazon.com. In this paper we analyze how the shape of Amazon''s sales distribution curve has changed from 2000 to 2008, and how this impacts the resulting consumer surplus gains from increased product variety in the online book market. Specifically, in 2008 we collected sales and sales rank data on a broad sample of books sold through Amazon.com and compare it to similar data we gathered in 2000. We then develop a new methodology for fitting the relationship between sales and sales rank and apply it to our data. We find that the Long Tail has grown longer over time, with niche books accounting for a larger share of total sales. Our analyses suggest that by 2008, niche books account for 36.7% of Amazon''s sales and the consumer surplus generated by niche books has increased at least five fold from 2000 to 2008. We argue that this increase is consistent with the presence of “secondary” supply- and demand- side effects driving the growth of the Long Tail online. In addition, our new methodology finds that, while power laws are a good first approximation for the rank-sales relationship, the slope is not constant for all book ranks, becoming progressively steeper for more obscure books.

E-commerce sales have grown rapidly worldwide, massively increasing the availability of new products. We examine data from the largest digital platform in China and find that the number of book titles almost doubled, prices fell somewhat, and most new books are sold to consumers with unusual tastes. Demand for these niche products was significantly more inelastic than that of mass products. Embedding the estimates of demand elasticity into a two-segment CES framework, we find the welfare gain from increased variety was about 40 times the gain from lower prices and that rural consumers enjoyed the largest gains.

We use a controlled field experiment to investigate the dynamic effects of retail advertising. The experimental design overcomes limitations hindering previous investigations of this issue. Our study uncovers dynamic advertising effects that have not been considered in previous literature. We find that current advertising does affect future sales, but surprisingly, the effect is not always positive; for the firm''s best customers, the long-run outcome may be negative. This finding reflects two competing effects: brand switching and intertemporal substitution. We also find evidence of cross-channel substitution, with the firm''s best customers switching demand to the ordering channel that corresponds to the advertising.

Many markets have historically been dominated by a small number of best-selling products. The Pareto Principle, also known as the 80/20 rule, describes this common pattern of sales concentration. However, information technology in general and Internet markets in particular have the potential to substantially increase the collective share of niche products, thereby creating a longer tail in the distribution of sales. This paper investigates the Internet''s “Long Tail” phenomenon. By analyzing data collected from a multi-channel retailer, it provides empirical evidence that the Internet channel exhibits a significantly less concentrated sales distribution when compared with traditional channels. Previous explanations for this result have focused on differences in product availability between channels. However, we demonstrate that the result survives even when the Internet and traditional channels share exactly the same product availability and prices. Instead, we find consumers'' usage of Internet search and discovery tools, such as recommendation engines, are associated with an increase the share of niche products. We conclude that the Internet''s Long Tail is not solely due to the increase in product selection but may also partly reflect lower search costs on the Internet. If the relationships we uncover persist, the underlying trends in technology portend an ongoing shift in the distribution of product sales.

We gather detailed data on organizational practices and IT use at 253 firms to examine the hypothesis that external focus - the ability of a firm to detect and therefore respond to changes in its external operating environment - increases returns to information technology, especially when combined with decentralized decision-making. First, using survey-based measures, we find that external focus is highly correlated with both organizational decentralization and IT investment. Second, we find that a cluster of practices including external focus, decentralization and IT is associated with improved product innovation capabilities. Third, we develop and test a 3-way complementarities model that indicates that the combination of external focus, decentralization and IT is associated with significantly higher productivity in our sample. In contrast, firms that have only one or two of these organizational practices in place, instead of all three, are not more productive than firms with none of them. We also introduce a new set of instrumental variables representing barriers to IT-related organizational change and find that our results are robust when we account for the potential endogeneity of organizational investments. Our results may help explain why firms that operate in information-rich environments such as high-technology clusters or areas with high worker mobility have experienced especially high returns to IT investment and suggest a set of practices that some managers may be able to use to increase their returns from IT investments.

A key question for Internet commerce is the nature of competition with traditional brick-and-mortar retailers. Although traditional retailers vastly outsell Internet retailers in most product categories, research on Internet retailing has largely neglected this fundamental dimension of competition. Is cross-channel competition significant, and, if so, how and where can Internet retailers win this battle? This paper attempts to answer these questions using a unique combination of data sets. We collect data on local market structures for traditional retailers, and then match these data to a data set on consumer demand via two direct channels: Internet and catalog. Interestingly, our analyses show that Internet retailers face significant competition from brick-and-mortar retailers when selling mainstream products, but are virtually immune from competition when selling niche products. Furthermore, since the Internet channel sells proportionately more niche products than the catalog channel - a phenomenon sometimes called the "Long Tail", the competition between the Internet channel and local stores is less intense than the competition between the catalog channel and local stores. The methods we introduce can be used to analyze cross-channel competition in other product categories, and suggest that managers need to take into account the types of products they sell when assessing competitive strategies.

We estimate the magnitude of consumer search benefits and costs using data obtained from a major Internet shopbot. For the median consumer, the benefits to searching lower screens are $6.55 while the cost of an exhaustive search of the offers is a maximum of $6.45. We are also able to estimate price elasticities and find that they are relatively high compared to offline markets (-7 to -10 in our base model). Our results suggest that consumers face fairly high costs to search for information online, even in the "nearly perfect" market of the shopbot.

Internet shopbots compare prices and service levels at competing retailers, creating a laboratory for analyzing consumer choice. We analyze 20,268 shopbot consumers who select various books from 33 retailers over 69 days for a total of 1,512,856 observed offers. Although each retailer offers a homogeneous product, we find that brand is an important determinant of consumer choice. Consumers use brand as a proxy for retailer credibility in non-contractible aspects of the product and service bundle, such as shipping reliability. Our results also suggest that consumers are sensitive to how total price is allocated between the item price, shipping price, and tax.

Big Data generated by crowds provides a myriad of opportunities for monitoring and modeling people''s intentions, preferences, and opinions. A crucial step in analyzing such “big data” is selecting the relevant part of the data that should be provided as input to the modeling process. In this paper, we offer a novel, structured, crowd-based method to address the data selection problem in a widely used and challenging context: selecting search trend data. We label the method “crowd-squared,” as it leverages crowds to identify the most relevant terms in search volume data that were generated by a larger crowd. We empirically test this method in two domains and find that our method yields predictions that are equivalent or superior to those obtained in previous studies (using alternative data selection methods) and to predictions obtained using various benchmark data selection methods. These results emphasize the importance of a structured data selection method in the prediction process, and demonstrate the utility of the crowd-squared approach for addressing this problem in the context of prediction using search trend data.

While it is now well established that IT intensive firms are more productive, a critical question remains: Does IT cause productivity or are productive firms simply willing to spend more on IT? We address this question by examining the productivity and performance effects of enterprise systems investments in a uniquely detailed and comprehensive data set of 623 large, public U.S firms. The data represent all U.S. customers of a large vendor during 1998-2005 and include the vendor''s three main enterprise system suites: Enterprise Resource Planning (ERP), Supply Chain Management (SCM), and Customer Relationship Management (CRM). A particular benefit of our data is that they distinguish the purchase of enterprise systems from their installation and use. Since enterprise systems often take years to implement, firm performance at the time of purchase often differs markedly from performance after the systems go live. Specifically, in our ERP data, we find that purchase events are uncorrelated with performance while go-live events are positively correlated. This indicates that the use of ERP systems actually causes performance gains rather than strong performance driving the purchase of ERP. In contrast, for SCM and CRM, we find that performance is correlated with both purchase and go-live events. Because SCM and CRM are installed after ERP, these results imply that firms that experience performance gains from ERP go on to purchase SCM and CRM. Our results are robust against several alternative explanations and specifications and suggest that a causal relationship between ERP and performance triggers additional IT adoption in firms that derive value from their initial investment. These results provide an explanation of simultaneity in IT value research that fits with rational economic decision-making: Firms that successfully implement IT, react by investing in more IT. Our work suggests replacing either-or views of causality with a positive feedback loop conceptualization in which successful IT investments initiate a virtuous cycle of investment and gain. Our work also reveals other important estimation issues that can help researchers identify relationships between IT and business value.

We explore the effect of computerization on productivity and output growth using data from 527 large US firms over 1987-1994. We find that computerization makes a contribution to measured productivity and output growth in the short term (using one year differences) that is consistent with normal returns to computer investments. However, the productivity and output contributions associated with computerization are up to five times greater over long periods (using five to seven year differences). The results suggest that the observed contribution of computerization is accompanied by relatively large and time-consuming investments in complementary inputs, such as organizational capital, that may be omitted in conventional calculations of productivity. The large long-run contribution of computers and their associated complements that we uncover may partially explain the subsequent investment surge in computers in the late 1990s.

Innovations can often be targeted to be more valuable for some consumers than others. This is especially true for digital information goods. We show that the traditional price system not only results in significant deadweight loss, but also provides incorrect incentives to the creators of these innovations. In contrast, we propose and analyze a profit-maximizing mechanism for bundles of digital goods which is more efficient and more accurately provides innovation incentives for information goods. Our “statistical couponing mechanism” does not rely on the universal excludability of information goods, which creates substantial deadweight loss, but instead estimates social value created from new goods and innovations by offering coupons to a relatively small sample of representative consumers. We find that the statistical couponing mechanism can operate with less than 0.1% of the deadweight loss of the traditional price-based system, while more accurately aligning incentives with social value.

We study the staggered introduction of a generative AI-based conversational assistant using data from 5,179 customer support agents. Access to the tool increases productivity, as measured by issues resolved per hour, by 14 percent on average, with the greatest impact on novice and low-skilled workers, and minimal impact on experienced and highly skilled workers. We provide suggestive evidence that the AI model disseminates the potentially tacit knowledge of more able workers and helps newer workers move down the experience curve. In addition, we show that AI assistance improves customer sentiment, reduces requests for managerial intervention, and improves employee retention.

We use data from the Annual Survey of Manufactures to study the characteristics and geography of investments in robots across U.S. manufacturing establishments. We find that robotics adoption and robot intensity (the number of robots per employee) is much more strongly related to establishment size than age. We find that establishments that report having robotics have higher capital expenditures, including higher information technology (IT) capital expenditures. Also, establishments are more likely to have robotics if other establishments in the same Core-Based Statistical Area (CBSA) and industry also report having robotics. The distribution of robots is highly skewed across establishments'' locations. Some locations, which we call Robot Hubs, have far more robots than one would expect even after accounting for industry and manufacturing employment. We characterize these Robot Hubs along several industry, demographic, and institutional dimensions. The presence of robot integrators and higher levels of union membership are positively correlated with being a Robot Hub.

In the mid-1990s, productivity growth accelerated sharply in the U.S. economy. In this paper, we identify several other industry-level changes that have occurred during the same time and argue that they are consistent with an increased use of information technology (IT). We use case studies to illustrate how IT has enabled firms to more rapidly replicate improved business processes throughout an organization, thereby not only increasing productivity but also market share and market value. We then empirically document a substantial increase in turbulence starting in the 1990s, as measured by the average intra-industry rank change in sales, earnings before interest, taxes, depreciation and amortization (EBITDA), and other metrics. In particular, we find that IT-intensive industries account for most of this increase in turbulence, especially after 1995. In addition, we find that IT-intensive industries became more concentrated than non IT-intensive industries after 1995, reversing the previous trend. The combination of increased turbulence and concentration, especially among IT-intensive industries, is consistent with recent theories of hypercompetition as well as Schumpeterian creative destruction. We conclude that the improved ability of firms to replicate business innovations has changed the nature of business competition.

Wie aufmerksame Leser wissen, beschäftigt sich XING Magazin gerne mit Zukunftsfragen. Das ist kein einfaches Terrain, und - so mögen Sie vielleicht einwenden - auch vergebene Liebesmüh ́. Viele Menschen haben den Eindruck, dass Fortschritt ein autonomer (sozialer) Prozess sei, der sich wie eine Naturgewalt vollzieht und das Individuum hätte nur die Wahl, sich diesen Entwicklungen anzuschließen, oder zunehmende Isolation in Kauf zu nehmen. Willy Brandt würde einer solchen Einstellung wahrscheinlich nicht zustimmen, denn ihm wird das Credo zugeschrieben: ,,Der beste Weg, die Zukunft vorauszusagen, ist, sie zu gestalten."