Risk-Aversion and Service Usage Elasticity: An Empirical and Theoretical Study of Contracting in Managed Print Service

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 also examine consequences of risk-aversion on the design of contracts under asymmetric information for multi-dimensional B2B services. In our theoretical model, we model the contracting and usage processes of MPS as a two-stage game. In the first stage, the provider designs multi-term contracts to screen the companies' private information about their willingness-to-pay. In the second stage, the employees of the companies choose print quantities. Then we build several econometric models based on the equilibrium contracts and print volumes from the theoretical model. 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.