Does information technology always lead to lower transaction costs?

This paper reconsiders the effect of information technology on transaction costs in view of IT externalities and coordination costs. The aim of the paper is to show that IT has ambivalent effects on the overall transaction costs. This analysis is based on the idea that IT externalities have both positive and negative effects on coordination and thus transaction costs. Two different strategies to use IT in an organizational setting are identified: one to increase the amount of information available to decision makers thus to reduce the uncertainty and hence transaction costs. The other to reduce the amount of available information to decrease the complexity faced and thus coordination and transaction costs. Finally, the effects of IT externalities impose the awareness that one strategy is not a substitute to the other rather that they can both coexist.