Essays on technology and innovation

2009 2009

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Abstract (summary)

The IT age is marked by innovative approaches to the online commerce. Technology as the core of innovation has undergone numerous evolutions through the "creative destruction." Motivated by the phenomena and the challenges in the technology-driven markets, I explore the economic role of innovation from different angles in the following essays.

Chapter 1 focuses on firms' competitive strategies while constructing novel business models in delivering online services. In particular, I am interested in their bundling of marketing services with the core business. In a game theoretic model, I derive competing firms' equilibrium strategies with choices between three business models, no ad-support, ad-support with the optional advertising strategy, and the mandatory advertising strategy, and find that competitive business models can be differentiation-driven or advertising-driven depending on market ad aversion. Interestingly, mandatory advertising weakly dominates optional advertising under certain market conditions. My findings offer new insights to the bundling literature.

Chapter 2 examines the performance-based auction model in the iconic online advertising innovation, keyword auctions. I analyze advertisers' decision of utilizing their existing reputation from a primary auction upon entering a new auction. The short-term and long-term setups are modeled for analyzing seasonal marketing in a new auction and branding a new product, in examining the impact of new market size, performance, and risk on advertisers' decisions. While an optimistic new market encourages reputation stretching, in the long-term setup it further depends on the performance difference between the two markets. A higher risk is found to induce stretching under intensive competition for both cases; in the long-term, stretching decision is determined by the market size.

Chapter 3 examines the connection between business cycles and innovation and offers insights for regulatory innovation policies. Combining endogenous market structure with the dynamic game framework, I study the Markov perfect equilibrium where heterogeneous firms choose their innovation rates. I find that increased per-capita income tends to improve aggregate innovation, while income inequality shocks may reduce innovation conditional on the market structure. I also find subsidies to dampen innovation incentives, and policies such as tax credits that reduce the variable R&D costs to have positive effects on innovation.

Indexing (details)

Information Technology;
Economic theory;
0338: Marketing
0489: Information Technology
0505: Economics
0511: Economic theory
Identifier / keyword
Social sciences; Applied sciences; Bundling; Business cycles; Innovation; Online advertising; Policy; Reputation
Essays on technology and innovation
Lin, Mei
Number of pages
Publication year
Degree date
School code
DAI-A 70/09, Dissertation Abstracts International
Place of publication
Ann Arbor
Country of publication
United States
Whinston, Andrew B.
Committee member
Gu, Bin; Mote, John; Raghunathan, Raj; Stahl, Dale
The University of Texas at Austin
Information, Risk, and Operations Management
University location
United States -- Texas
Source type
Dissertations & Theses
Document type
Dissertation/thesis number
ProQuest document ID
Database copyright ProQuest LLC; ProQuest does not claim copyright in the individual underlying works.
Document URL
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