Essays of new information systems design and pricing for supporting information economy

In recent years, the rapid development of Internet has significantly changed people’s life style and the way business is conducted, even though accompanied by fear and sceptism. Research on developing new business models regarding to innov ative use of the Internet has become very important to justify the value of Internet. In addition, designing new pricing mechanisms tailored for the new Internet access infrastructures also has great values in supporting and expanding the Internet usage. This dissertation contains three essays exploring those issues. In the first essay, an emerging Internet Business the “Prediction Market” is described and examined. The market is specifically designed for collecting dispersed information from a wide variety of agents. In order to achieve efficient information elicitation and aggregation, the agents are characterized according to their information pre cision and the cost to induce their information. The optimal selection rules are characterized and a betting mechanism which can implement this selection rule is proposed and analyzed. The second essay proposes a new pricing mechanism for price discrimination under demand uncertainty, which can be applied to allocating Internet access. An option framework is used so that users with higher valuation for Internet usage can purchase options beforehand, which gives them the right to exercise the option and get guaranteed demand execution. Such an option framework has three advantages compared with previous congestion pricing mechanism. First, it helps reveal the customers valuation information ex ante and hence allows the service provider to conduct price discrimination. Second, it improves allocation efficiency when capacity is tight. Lastly, it provides customers’ demand information ex ante to facilitate the service provider’s capacity investment decision. Thethirdessayexaminesthepricingissueforanemergingnetworkinfrastruc ture – the Wireless Mesh Network. In such a network, every user can become a router themselves and hence they have the right to decide whether and how much traffic they pass to their neighbors. The overall network quality is highly sensitive to where the users are located and whether they have incentive to share their device capacity with their neighbors. The profitability of a decentralized linear pricing scheme is analyzed under such a network infrastructure. The efficiency loss due to the individual users’ pricing power is estimated and comparison is conducted with traditional Wi-Max infrastructure.