Risk-Aversion and B2B Contracting under Asymmetric Information: Evidence from Managed Print Services

Risk-Aversion and B2B Contracting under Asymmetric Information: Evidence from Managed Print Services

Authors

  • Jie Ning
  • Volodymyr Babich
  • John Handley
  • Jussi Keppo

Published

Operations Research, vol. Forthcoming

Abstract

Managed print service (MPS) is a type of IT infrastructure service that provides centralized management of companies' printing device fleets. In this paper, we estimate the provider's risk preference in MPS using a proprietary data set from Xerox Corporation. We adopt a structural approach in our empirical analysis by modeling the contracting and usage processes of MPS as a two-stage screening game and building econometric models based on the equilibrium contracts and print volumes. Our econometric models have a unique hierarchical structure that allows clustering of printers with the same contracts in the same company, thereby capturing the B2B nature of MPS. We find that Xerox exhibits risk-aversion in MPS contracting, and provide institutional details of Xerox's commission holdback policy that may cause the observed risk-aversion. In the counterfactual analysis, we demonstrate the significance of the provider's risk-aversion and the implications of the commission holdback policy on equilibrium contracts, the expected earnings of Xerox and customer companies, and their preferences for printer models.