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Faculty Research

Challenging Conventional Wisdom

Many experts argue that the Internet is a boon to consumers, forcing businesses to compete more aggressively on prices as customers quickly and effortlessly compare costs on the Web. Professor Waleed Muhanna’s latest research, featured in the March 2005 issue of Management Science, challenges the conventional wisdom regarding the Internet’s impact on price competition. His research shows that less costly consumer searches can facilitate firms’ abilities to tacitly collude, resulting in higher prices. Muhanna observes that the same technology that eases the consumer search also allows firms to monitor each other’s prices more easily. With such monitoring, firms can more easily detect cheating on a collusive price arrangement, allowing an even greater scope for collusion. This means businesses facing similar costs on the Web have no incentive to undercut their rivals. While consumers may benefit from buying some goods online, Muhanna says the results of his study, co-authored with colleagues from Rutgers and The University of Texas at Austin, suggest that, overall, people shouldn’t expect great savings and in some cases consumer welfare may actually suffer from Internet pricing. Using this model, Muhanna and his colleagues are collecting data to see if they can find evidence consistent with their findings in the real world. Rather than use a static economic model to predict outcome, Muhanna used a dynamic model in which firms engage in long-term interactions, a model he suggests is more faithful to reality. In addition to studying the impact of the Internet on markets and the nature of competition, Muhanna’s other research interests include assessing the business value of information technology, data management and information systems strategy.

As the February 2005 keynote speaker for the Asia Society Washington Center’s Contemporary Affairs Series in Washington, D.C., Professor Shenkar discussed the overall impact of China on the future world economy and the Chinese auto industry’s effect on the United States.

Building Awareness

China’s phenomenal economic growth has put
it on course to surpass the United States as the
world’s largest economy within 20 years. That will have a powerful impact on jobs, companies and the country’s economic future. In his newest book, The Chinese Century: The Rising Chinese Economy and Its Impact on the Global Economy, the Balance of Power, and Your Job, Ford Motor Company Chair in Global Business Management Oded Shenkar says too many Americans have underestimated China’s extraordinary economic growth. He believes China is restoring itself by infusing modern technology and market economics into a nondemocratic system controlled by the Communist party and bureaucracy. His research demonstrates why China’s accelerating growth differs from predecessors such as Japan, India and Mexico and how it will lead to a radical restructuring of the global business system. Widely considered one of the leading experts on comparative and international management, Shenkar was recently appointed a fellow of the Academy of International Business and has written more than 70 articles for such journals as the Academy of Management Review, Journal of International Business Studies and Management Science. In May, he served on a panel for the U.S.–China Economic and Security Review Commission’s public hearing on China and the Future of Globalization in New York.