Some propositions regarding the role of information technology in the organization of economic activity

Industrial organization literature provides a comprehensive treatment of the many factors that affect the costs and risks of transacting to obtain goods and services. The authors discuss how information technology (IT) can reduce the costs and risks associated with these exogenous factors, thereby facilitating the adoption of economically efficient organizational forms. It is suggested that the firm's choice of governance structure to deal with the transactions cost stemming from various exogenous factors has been significantly altered by the increasing use of IT. IT promotes long-term cooperative relationships with the firm's business partners as a viable choice, and in fact the preferred choice, of governance structure in many cases where this was not previously the case. Except in the cases of relationship-specific investments or a small number of suppliers, IT allows the firm to deal with transaction costs in a more efficient manner than typically requires a smaller commitment of capital.<
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