| This dissertation examines the strategies by which enterprises and enterprise information technology (IT) vendors, particularly vendors of enterprise software, handle complex incentive and contracting problems arising from the unusual industry economics, product characteristics and human capital concerns associated with this product. It uses the lens of microeconomics, particularly industrial organization, personnel economics and transaction cost economics, to shed light on how contracting patterns between IT vendors and their customers vary as key vendor and customer characteristics change. The dissertation uses proprietary data from transactions between IT vendors and their customers.;The first chapter of the dissertation examines the impact of a highly convex salesperson commission scheme in enterprise software on sales timing and pricing. Salespeople receive a higher commission on the same potential deal if they close it in a quarter in which they have generated substantial other sales, leading salespeople to attempt to concentrate sales in a single quarter. I demonstrate empirically that salespeople give excess discounts to customers in order to accomplish this bunching of sales, and that these excess discounts represent 6-8% of the vendor's total revenue.;In the second chapter, I examine how software vendors and their customers react to the significant switching costs involved with buying and implementing an enterprise software package. I show empirically that vendors charge an average price premium of nearly 50% to customers that are "locked in," but also that many customers avoid paying these "locked in" rates by switching vendors rather than purchasing upgrades. Switching behavior is positively correlated with a customer's financial strength and IT capabilities.;The final chapter examines the phenomenon of total IT outsourcing by global banks and demonstrates that these relationships are an example of hybrid governance, predicted in transaction cost economics when the market and hierarchy governance modes are both problematic. I show that the uncertainty generated by quick innovation in banking IT, incentive and agency problems banks face in managing human capital, and idiosyncratic financial concerns were important drivers of the choice by some banks to completely outsource their IT function. |
