Title: Empirical analysis of the impact of information technology on vertical integration

Authors: Namchul Shin

Addresses: School of Computer Science and Information Systems, Pace University, One Pace Plaza, New York, NY 10038, USA

Abstract: Previous information systems (IS) research has examined the relationship between information technology (IT) and the organisation of economic activities such as vertical integration and outsourcing. The seminal research by Brynjolfsson, Malone, Gurbaxani and Kambil [1] has examined empirically the link between the two. Unlike the study by Brynjolfsson and his colleagues, which used an industry average of value-added only for the manufacturing industry, this study uses firm-level data to examine empirically the relationship between IT and vertical integration for both manufacturing and service firms. The results show that increases in IT spending are highly associated with decreases in vertical integration for the five-year period from 1988 to 1992. This study confirms the results of Brynjolfsson and his colleagues| study at the firm level. The findings of this study also imply that recent applications of IT such as electronic data interchange provide a better means of inter-organisational coordination than earlier applications of IT.

Keywords: information technology spending; transaction cost economics; coordination costs; vertical integration; interorganisational coordination.

DOI: 10.1504/IJSTM.2002.001616

International Journal of Services Technology and Management, 2002 Vol.3 No.1, pp.54-67

Available online: 10 Jul 2003 *

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