Richard Schmalensee

Richard L. Schmalensee is John C. Head III Dean and Professor of Management and Economics at the MIT Sloan School of Management. He is co-editor of Management: Inventing and Delivering Its Future (MIT Press, 2003).

  • Invisible Engines

    Invisible Engines

    How Software Platforms Drive Innovation and Transform Industries

    David S. Evans, Andrei Hagiu, and Richard Schmalensee

    Harnessing the power of software platforms: what executives and entrepreneurs must know about how to use this technology to transform industries and how to develop the strategies that will create value and drive profits.

    Software platforms are the invisible engines that have created, touched, or transformed nearly every major industry for the past quarter century. They power everything from mobile phones and automobile navigation systems to search engines and web portals. They have been the source of enormous value to consumers and helped some entrepreneurs build great fortunes. And they are likely to drive change that will dwarf the business and technology revolution we have seen to this point. Invisible Engines examines the business dynamics and strategies used by firms that recognize the transformative power unleashed by this new revolution—a revolution that will change both new and old industries.

    The authors argue that in order to understand the successes of software platforms, we must first understand their role as a technological meeting ground where application developers and end users converge. Apple, Microsoft, and Google, for example, charge developers little or nothing for using their platforms and make most of their money from end users; Sony PlayStation and other game consoles, by contrast, subsidize users and make more money from developers, who pay royalties for access to the code they need to write games. More applications attract more users, and more users attract more applications. And more applications and more users lead to more profits.

    Invisible Engines explores this story through the lens of the companies that have mastered this platform-balancing act. It offers detailed studies of the personal computer, video game console, personal digital assistant, smart mobile phone, and digital media software platform industries, focusing on the business decisions made by industry players to drive profits and stay a step ahead of the competition. Shorter discussions of Internet-based software platforms provide an important glimpse into a future in which the way we buy, pay, watch, listen, learn, and communicate will change forever. An electronic version of this book is available under a Creative Commons license.

    • Hardcover $8.75
    • Paperback $22.95
  • Paying with Plastic, Second Edition

    Paying with Plastic, Second Edition

    The Digital Revolution in Buying and Borrowing

    David S. Evans and Richard Schmalensee

    The definitive account of the trillion-dollar payment card industry.

    The payment card business has evolved from its inception in the 1950s as a way to handle payment for expense-account lunches (the Diners Club card) into today's complex, sprawling industry that drives trillions of dollars in transaction volume each year. Paying with Plastic is the definitive source on an industry that has revolutionized the way we borrow and spend. More than a history book, Paying with Plastic delivers an entertaining discussion of the impact of an industry that epitomizes the notion of two-sided markets: those in which two or more customer groups receive value only if all sides are actively engaged. New to this second edition, the two-sided market discussion provides useful insight into the implications of these market dynamics for cardholder rewards, merchant interchange fees, and card acceptance. The authors, both of whom have researched the industry for more than 25 years, also examine the implications of the recent antitrust cases on the industry as well as other business and technological changes—including the massive consolidation brought about by bank mergers, the rise of the debit card, and the emergence of e-commerce—that could alter the payment card industry dramatically in the years to come.

    • Hardcover $62.00
    • Paperback $33.95
  • Management


    Inventing and Delivering Its Future

    Thomas A. Kochan and Richard Schmalensee

    The MIT Sloan School of Management perspective on future management challenges.

    The MIT Sloan School of Management, as conceived by the legendary General Motors chairman Alfred P. Sloan, was founded in 1952 to draw on the scientific and technical resources of MIT and approach the problems of management with the rigorous research practices for which MIT was famous. Fifty years later, the Sloan School gathered international leaders in business and management, MIT faculty, students, and alumni to address again the basic principles that should guide business and management. This book presents the papers prepared by student-faculty teams, speeches by business and world leaders, and summaries of the discussions from this special convocation; taken together, they offer a guide to the future of management based on the hallmarks of MIT and Sloan—creativity and innovation.

    The topics considered coalesced around three main themes. First, and paramount, is the necessity of building and maintaining trust by means of openness, transparency, and accountability; this was addressed in speeches by Kofi Annan and Carly Fiorina and exemplified by the case study presented of Nike's efforts to rebuild the trust of customers. The increasingly complex conditions of the modern global economy emerged as another recurring theme, as the participants considered the effect of the growing spectrum of stakeholders on issues of corporate governance. The third common theme was the inescapability of technological and scientific change, from the Internet as a marketing tool to the organizational impact of information technology.

    • Hardcover $9.75
    • Paperback $30.00
  • Paying with Plastic

    Paying with Plastic

    The Digital Revolution in Buying and Borrowing

    David S. Evans and Richard Schmalensee

    In Paying with Plastic, David Evans and Richard Schmalensee provide a nontechnical distillation of their years of research on the economic, technological, and institutional forces that have shaped the payment card industry.

    Since Diners Club issued its first charge cards in 1950, payment cards—credit, debit, and charge cards—have revolutionized how and whenwe pay for goods and services. In Paying with Plastic, David Evans and Richard Schmalensee provide a nontechnical distillation of their years of research on the economic, technological, and institutional forces that have shaped the payment card industry. They show how competition works in an industry that does not neatly fit any of the standard economic models. They describe how the payment card companies such as MasterCard and Visa have developed complex systems for coordinating transactions among their thousands of bank members and millions of cardholders and accepting merchants. Evans and Schmalensee also describe recent developments in the industry and consider its likely evolution.

    • Hardcover $29.95
    • Paperback $21.95
  • The Dilemma of Toxic Substance Regulation

    How Overregulation Causes Underregulation

    John Mendeloff and Richard Schmalensee

    In this provocative study, John Mendeloff shows that federal programs which set standards for toxic substances have twin dilemmas.The new standards that they establish are usually too strict and costly to justify the benefits they confer. But, at the same time, the slow pace of standard-setting means that many serious hazards are never addressed at all. Mendeloff argues that more extensive, but less strict, rulemaking could make both industry and workers better off and that changes in legislation are required to break the current stalemate.

    Mendeloff looks at workplace risks regulated, and not regulated, by OSHA. He discusses the thorny issue of how much our society should value the prevention of occupational disease deaths. His innovative investigation of "underregulation" brings together diverse data to show that moderate reductions in current exposure levels would often be beneficial. Regulating Toxic Substances makes a major contribution to our understanding of how regulation works by demonstrating that the strictness with which standards are set is a major cause of the slow pace. Administrative rulemaking procedures offer opportunities for those concerned about the reasonableness of standards - judges and other public officials, as well as the affected industries - to try to block or delay them. An important implication is that less strict standards would not necessarily reduce overall protection and might increase it.

    In a major discussion of regulatory reform, Mendeloff analyzes such alternatives to standard-setting as information and liability strategies and such generic changes in regulatory procedures as regulatory budget and regulatory negotiation. Finding that neither provides a sufficient response to the overregulation-underregulation problem, he proposes a three-step legislative package that could be applied at OSHA and other standard-setting agencies.

    This book is seventeenth in the series Regulation of Economic Activity, edited by Richard Schmalensee.

  • Private Antitrust Litigation

    New Evidence, New Learning

    Richard Schmalensee

    Is private antitrust litigation out of control, encouraging frivolous suits and deterring companies from pursuing innovative manufacturing, organization, and distributional techniques? Or is it a fair and useful system, particularly during periods when government antitrust enforcement is lax and pro-business? The contributions in this book shed new light on the current debate over treble damage reform. Using a unique collection of data on more than 2,350 antitrust cases filed in five districts between 1973 and 1983 - a research effort instigated by the Georgetown private treble damage project - prominent scholars analyze the key issues involved in reform proposals. Steven Salop and Lawrence White present an analytic framework for studying private antitrust litigation, setting out the policy issues and providing an overview of the data collected by the project. Paul Teplitz discusses the nature of the data and their collection in greater detail. Kenneth Elzinga and William Wood compare the cost of litigation to the size of settlements and awards in an attempt to gauge the degree to which the system compensates victims of antitrust violations as opposed to the system's effectiveness as a deterrent. Jeffrey Perloff and Daniel Rubinfeld focus on the incentives for litigants to settle, and Stephen Calkins notes the reaction of the legal system to treble damages in the light of motions to dismiss and motions for summary judgment. Thomas Kauper and Edward Snyder look at those cases that followed on government cases (primarily price fixing), and George Benston takes up multi-party cases, considering the effects of class actions, joint and several liability, and various claim reduction reform proposals on deterrence and the incentives to settle. The book's final section presents three interesting and diverse policy commentaries by George Garvey, Ira Millstein, and Donald Turner.

    Private Antitrust Litigation is sixteenth in the series Regulation of Economic Activity, edited by Richard Schmalensee.

  • Targeting Economic Incentives for Environmental Protection

    Albert Nichols and Richard Schmalensee

    This book makes a major and original contribution to the "incentives vs. standards" debate by showing how different targets (the points at which incentives are applied) affect the ability of regulation to provide environmental protection at lowest possible cost.

    Economists have long argued that environmental regulation should rely less on command and control approaches that employ uniform standards, and more on economic incentives, such as emission charges and marketable emission permits. This book makes a major and original contribution to the "incentives vs. standards" debate by showing how different targets (the points at which incentives are applied) affect the ability of regulation to provide environmental protection at lowest possible cost. In particular, it argues that scholars and regulators both have paid insufficient attention to developing strategies that are sensitive to major variations across plants in the benefits of controlling emissions.The book develops a theory that shows how the choice of target interacts with the charge or standard in determining the net benefits of regulation. This conceptual framework is applied to a case study of proposed regulations for chemical plants that emit benzene, which is a suspected cause of leukemia. It reveals that a charge targeted on exposure would perform much better than an emission standard or the type of uniform emission charge usually advocated by economists.

    Albert L. Nichols is presently on leave from Harvard as Director of the Economic Analysis Division of the Office of Policy, Planning, and Evaluation, and Special Assistant to the Assistant Administrator for Policy, Planning, and Evaluation, U.S. Environmental Protection Agency, Washington, D.C. The book is eighth in the Regulation of Economic Activity Series, edited by Richard Schmalensee.

  • Markets for Power

    Markets for Power

    An Analysis of Electric Utility Deregulation

    Paul L. Joskow and Richard Schmalensee

    This timely study evaluates four generic proposals for allowing free market forces to replace government regulation in the electric power industry and concludes that none of the deregulation alternatives considered represents a panacea for the performance failures associated with things as they are now. It proposes a balanced program of regulatory reform and deregulation that promises to improve industry performance in the short run, resolve uncertainties about the costs and benefits of deregulation, and positions the industry for more extensive deregulation in the long run should interim experimentation with deregulation, structural, and regulatory reforms make it desirable. The book integrates modern microeconomic theory with a comprehensive analysis of the economic, technical, and institutional characteristics of modern electrical power systems. It emphasizes that casual analogies to successful deregulation efforts in other sectors of the economy are an inadequate and potentially misleading basis for public policy in the electric power industry, which has economic and technical characteristics that are quite different from those in other deregulated industries.

    • Hardcover $32.50
    • Paperback $34.00


  • Incentives for Environmental Protection

    Thomas C. Schelling

    This book explores the extent to which pricing incentives such as charges on emissions; in contrast to regulatory standards, can be shaped into a practical policy that is technically effective, politically enactable, administratively enforceable, and equitable. It also compares he advantages and disadvantages of this approach to those that characterize the policy of compliance to regulatory standards. And it identifies the criteria on which either pricing mechanisms or regulatory standards should be based. Three case studies comprise the heart of the book. One investigates carcinogenic chemical emissions, another audits the tradeoffs in controlling aircraft noise near major airports, and the third treats the protection of air quality from pollution by primarily stationary sources. The case studies are introduced by a chapter that gives numerous examples of possible pricing approaches and identifies common lessons that the three diverse studies reinforce.: The studies are followed by a chapter which is based on interviews with Congressional staff, environmentalists, and industrial lobbyists and other interest groups in Washington, revealing their assessments of pricing mechanisms in environmental protection.

    The book is fifth in the series, Regulation of Economic Activity.