Information technology and information goods producing firms: vertical and horizontal boundary change

The electronic markets hypothesis holds that information technology use influences the dismantling of vertical firm boundaries because of reductions in the cost of transactions between firms. Anecdotal evidence of merger and alliance activity for information goods producing firms seems to be at odds with these predictions of an IT-driven rise in vertical market coordination structures. An intersection of transactions cost economics with information economics yields a research model that may more thoroughly explain and predict vertical and horizontal boundary change behavior for information goods producing firms. The model separates the economic effects of a firm’s use of information technology on the internal governance of the production and distribution sequence (vertical organizational boundaries), from the economic effects of the degree of information in the firm’s product line on internal governance and external market structures (horizontal organizational boundaries). The research reported here tests if firms that produce higher levels of information goods have different vertical and horizontal organizational boundaries when compared to non-information goods firms, even when these firms have similar levels of IT deployment. Preliminary data from 49 publicly traded firms indicate that the model and some of the research hypotheses are supported. If additional research finds further support for the model, then it may be that information goods fm structures are driven more by the unique scale, scope, and transactional economics of producing, distributing, and marketing information products, rather than the transactional effects of using information technology in the production value chain.