Focus
on Research
Penn State Intercom......March
22, 2001
e-Commerce strategy works
best with just 2 service levels 
By Barbara Hale
Public Information
Despite the diversity in the need for e-market services, buyers and sellers who use online auctions, travel agencies, comparison shoppers, investment brokers or other electronic intermediaries or middlemen, can continue to expect a maximum of just two service and fee options -- premium and basic.
Hemant Bhargava, professor of management information systems, explained, "Contrary to standard economic theory that says, a firm selling in a broad market maximizes profits by offering multiple differentiated products at differential prices, we've found a different effect at work for these electronic intermediaries."
Analysis by Bhargava and colleagues has shown that, if the intermediary's cost of providing service is not strongly related to the level of service then the intermediary maximizes profit by offering just two services: a high quality level of service and a low quality level.
For example, he said, "Web-based e-mail providers offer a 'premium' service with a monthly fee and a 'no-frills' free service. The premium service, which offers larger mail boxes and other technical features, usually costs about $30 to $40 a year. You don't get a middle-level service at, say, $20 a year."
A faculty member in The Smeal College of Business Administration, Bhargava added, "Of course, the 'free' service isn't really free. Customers pay in the form of personal information and attention to advertising content."
The researchers also found that improving the quality of the lower level service hurts the intermediary's profits. So, the intermediary's interests are best served by offering only two levels -- the best possible level of service and the least possible level needed to make it worthwhile to consumers.
Bhargava's research colleagues, both at Carnegie Mellon University, are Vid-yanand Choudhard, assistant professor in the Graduate School of Industrial Administration, and Ramayya Krishnan, the Cooper professor at The Heinz School of Public Policy and Management.
Bhargava says even a brief canvass of the Web will show that the industry is already practicing this limited two level product and pricing strategy. Online auctions, such as eBay, charge both buyers and sellers. The two-level strategy explains why you can't bargain with eBay to let you sell your late Aunt Bertha's prize porcelain bird collection online for less than the usual 2 percent to 3 percent they normally charge sellers.
Online auction intermediaries create a network that aggregates buyers and sellers. The intermediary's value to buyers increases as the number of sellers increases. Similarly, its value to sellers increases as it aggregates more buyers.
Bhargava says this "aggregation benefit" is key to understanding the results obtained in the researchers' study.
"In a buyer-sided market, the intermediary's value to a buyer is a combination of the level of service it provides and the number of sellers it aggregates. So, it uses the premium service to derive maximum revenues from buyers who most value its service," he said. "It uses the low quality and low-priced service to lure everyone else into the market and extract a price for the aggregation benefit that it creates. Any qualities in between would simply take away profits from the high-level service, since some of those customers would switch down to the new service. Similar reasoning applies in seller-sided markets.
"Some people thought that e-commerce would ease out intermediaries and encourage person-to-person commerce. However, that doesn't appear to be happening," the researcher said.
Research targets scrap tires
as aid in wastewater filtration
Every year, Pennsylvania alone produces more than 11 million scrap tires that clog landfills, pollute the earth, are a fire hazard, and quickly become breeding areas for mosquitoes and rats. Finding adequate uses for the castoff tires is a continuing problem and illegal dumping has become a serious problem throughout the commonwealth.
But, a Penn State Harrisburg faculty member and researcher is confident he's developed a use for old tires that will help alleviate the problem and clean up the environment at the same time. Assistant professor of environmental engineering Yuefeng Xie's research uses crumb rubber, a tire-derived material, as a filter media for wastewater filtration.
For traditional wastewater filtration, gravity down-flow granular filters are commonly used. One major problem with these filters is that upon backwashing the particles, the larger ones settle at a greater rate than the smaller. Xie explained that this causes the top of the filter bed to hold the smallest particles and the bottom of the bed to hold the largest. The small particles tend to become clogged quickly.
In his research, Xie has proved that crumb rubber is not a rigid material, instead it can be easily bent or compressed. This reverses the clogging problem, he added, and enhances the filtration process. Through the crumb rubber method, the larger solids are removed at the top layer of the filter bed and the smaller solids at a lower level, enabling greater depth filtration and longer filter runs.
Xie is confident the process has widespread, economic application for any treatment facility seeking to better filter water before it is discharged.
Universe teems
with
black holes
From NASA reports
For the first time, astronomers believe they have proof black holes of all sizes once ruled the universe.
NASA's Chandra X-ray Observatory provided the deepest X-ray images ever recorded, and those pictures deliver a novel look at the past 12 billion years of black holes.
Two independent teams of astronomers presented images that contain the faintest X-ray sources ever detected, which include an abundance of active super-massive black holes.
"The Chandra data show us that giant black holes were much more active in the past than at present," said Riccardo Giacconi of Johns Hopkins University and Associated Universities Inc., Washington, D.C.
The images, known as Chandra Deep Fields, were obtained during many long exposures over the course of more than a year.
"For the first time, we are able to use X-rays to look back to a time when normal galaxies were several billion years younger," said Ann Hornschemeier, a University graduate student in astronomy and astrophysics. The group's 500,000-second exposure included the Hubble Deep Field North, allowing scientists the opportunity to combine the power of Chandra and the Hubble Space Telescope. The Penn State team recently acquired an additional 500,000 seconds of data, creating another one-million-second Chandra Deep Field, located in the constellation of Ursa Major.
The images are called Chandra Deep Fields because they are comparable to the famous Hubble Deep Field in being able to see further and fainter objects than any image of the universe taken at X-ray wavelengths. Both Chandra Deep Fields are comparable in observation time to the Hubble Deep Fields, but cover a much larger area of the sky.
"In essence, it is like seeing galaxies similar to our own Milky Way at much earlier times in their lives," Hornschemeier said. "These data will help scientists better understand star formation and how stellar-sized black holes evolve."
Another discovery to emerge from the Chandra Deep Field South is the detection of an extremely distant X-ray quasar, shrouded in gas and dust. "The discovery of this object, some 12 billion light years away, is key to understanding how dense clouds of gas form galaxies, with massive black holes at their centers," said Colin Norman of Johns Hopkins University.
Chandra's Advanced CCD Imaging Spectrometer was developed for NASA by Penn State and Massachusetts Institute of Technology, Cambridge, under the leadership of Gordon Garmire, Evan Pugh professor of astronomy and astrophysics.