Journal of Management Information Systems

Volume 25 Number 2 2008 pp. 7-12

Special Issue: Impact of Information Systems on Market Structure and Function: Developing and Testing Theories

Clemons, Eric K, Kauffman, Robert J, and Dewan, Rajiv M

Eric K. Clemons is a Professor at the Wharton School, University of Pennsylvania, where he has served since 1976. His visiting appointments include Harvard University, Cornell University, Hong Kong University of Science and Technology, and the Indian School of Business. He serves on the editorial boards of the Journal of Management Information Systems and the International Journal of Electronic Commerce. His research specialties are in the areas of IT and business strategy and IT and financial markets. More specifically, he studies the impact of technology on consumer behavior, analyzing investments in strategic IT ventures, managing the risks of strategic outsourcing, managing the risk of strategic IT implementations, and strategic implications of e‑commerce for channel power and profitability. He is the Director of the Wharton School’s Sponsored Research Program in Information, Strategy, and Economics; the Area Head for Information, Strategy, and Economics; and program coordinator for the school’s major in e‑commerce. He also is the founder of the Hawaii International Conference on System Sciences’ (HICSS) annual Competitive Strategy, Economics, and Information Systems mini-track, which had its twentieth anniversary meeting in January 2007, and the winner of two HICSS Best Paper awards.

Robert J. Kauffman is the W.P. Carey Chair in Information Systems at the W.P. Carey School of Business, Arizona State University, where he serves with joint appointments in Finance, Supply Chain Management, and the College of Computer Science and Informatics. He has served on the faculty at New York University, the University of Minnesota, and the University of Rochester, and worked in international banking and finance. He is also past director of the MIS Research Center. His research interests span the economics of IS, financial markets, technology adoption, competitive strategy and technology, IT value, strategic pricing and technology, supply-chain management, and theory development and empirical methods for IS research. He has won numerous research awards, including a 2007 Best Research award from the Journal of the Association of Information Systems for theory-building research in the area of product and market transparency made possible by IT. His recent paper on travel meta-search services providers won the Best Paper award at the 2008 Hawaii International Conference on System Sciences. His publications appear in Information Systems Research, MIS Quarterly, Management Science, Organization Science, International Journal of Electronic Commerce, and the Journal of the AIS, and elsewhere.

Rajiv M. Dewan is an Associate Professor at the University of Rochester’s William E. Simon Graduate School of Business Administration, where he is involved in research in electronic commerce, organizational issues in management and information systems, the information technology industry, and financial information systems. He currently serves as the chair of the schoolwide doctoral program. His papers have been published in Management Science, Journal of Management Information Systems, Information Systems Research, INFORMS Journal of Computing, Decision Support Systems, IEEE Transactions on Computers, and other journals. Prior to joining the Simon School, he was a faculty member at Northwestern University’s Kellogg Graduate School of Management. He is a member of the Association for Computing Machinery, IEEE Computer Society, INFORMS, Association for Information Systems, and Beta Gamma Sigma. Dr. Dewan and two other colleagues from the University of Rochester won the Best Paper award in the Internet and Digital Economy Track at HICSS‑35 in January 2002. He has been organizing HICSS mini-tracks on strategy, economics, IS, and e‑commerce since 1999.

The twenty-fifth anniversary of the Journal of Management Information Systems provides a great opportunity for the guest editors and the authors of this Special Issue to make a contribution to the Journal’s contents. In addition to some new tests of theories that have been presented here over the years, we also bring the readers’ attention to interesting new issues in research that will be valuable to develop further into their own research streams in the coming years. The topics we have selected are representative of the mainstream of competitive strategy and economic theory-motivated research, yet they reflect the motivation that we all have to innovate, look for new and interesting ways to inform managerial decision making in various contexts, and leverage new uses of technology that challenge some of the fundamentals of what we know as management scientists and business professionals. This issue’s contents are drawn from two sources: (1) As usual, our main source is the Competitive Strategy, Economics and Information Systems Mini-Track of the Forty-First Annual Hawaii International Conference on System Sciences (HICSS) in 2008. (2) Our second source is papers that were submitted by authors who participated with us before at HICSS related to their topics, or whose papers we had a direct hand in developing under review and had seen presented elsewhere. Altogether we have eight papers, whose contents span a range of theories. They include the "move to the middle" theory, the theory of consumer behavior, consumer informedness theory, regret theory, the theory of newly vulnerable markets, and information economics for data quality optimization. The application areas studied are equally interesting, including government enforcement of antihacking laws, supply-chain management, peer-to-peer (P2P) file sharing, the retail goods and branding business, data management within the firm, the structure and performance of the online travel agency and air travel industry, prospective information technology (IT) investment evaluation, and two-sided network platforms.

An important fact in this age of digital marketing and electronic marketing is that technology has changed the availability of information to consumers regarding the attributes, price, and other relevant details on what they can purchase. Eric K. Clemons, in the leadoff paper of this Special Issue, "How Information Changes Consumer Behavior and How Consumer Behavior Determines Corporate Strategy," argues that consumer informedness has never been higher. He notes that the changes in consumer informedness also have had a profound effect on the demand side of the market, changing patterns of consumption. He points to two key findings. First, when consumers know in detail what is available on the market, their utility for a product that does not quite match their needs is quite a bit lower in comparison to what it used to be, when it was much more difficult to find comparable goods. Second, when consumers are uncertain as to exactly what they want to buy, using the Internet channel makes it possible for them to find many more products that may approximate what they want, with the result that they tend to have higher utility than they would have had in the absence of the accessible choices. The author explores two kinds of market opportunities that are made possible with technology, using a historical perspective through which to leaven his theoretical perspective: the traditional mass market fat spots and the new resonance marketing sweet spots. By offering a spectrum of interesting examples and applications, and drawing new conclusions about situations that we thought we already knew quite well, Clemons leaves us with an impression of much deeper knowledge about consumer compromise and uncertainty discounts, branding and market segmentation, product differentiation and line extensions, and effective management practices to handle the increasing complexity of product portfolios.

Consistent with our theme of testing theories and exploring new issues, the second paper of the Special Issue provides an empirical test of the "move to the middle" theory, initially presented in the Journal of Management Information Systems in 1993, by Clemons et al. [1]. Jason Dedrick, Sean Xin Xu, and Kevin Xiaoguo Zhu have written "How Does Information Technology Shape Supply-Chain Structure? Evidence on the Number of Suppliers." The authors report on a study of suppliers and electronic procurement for 150 U.S. manufacturing firms. They note that the custom-type of goods, and the supply-chain activities based on more integrated buyer-supplier interorganizational systems capabilities, are consistent with a greater likelihood of having more suppliers. This evidence is in favor of the "move to the middle" hypothesis. By the same token, when a manufacturer produces more commodity-like goods and the market is able to provide transparent policing of prices, there is less need for tight integration and so a smaller number of suppliers is observed.

The third paper follows up the first with another new test of theory that has been developed by authors who have contributed to our HICSS mini-track on Competitive Strategy, Economics and Information Systems. Nelson F. Granados, Robert J. Kauffman, and Bradley King have authored a paper entitled "How Has Electronic Travel Distribution Been Transformed? A Test of the Theory of Newly Vulnerable Markets." The ideas have been brought into the information systems (IS) discipline by Eric Clemons and his coauthors since the 1990s, who refer to them and the extensions they have made as the theory of newly vulnerable markets. Surprisingly, though, these ideas have never been tested in the IS literature formally with analytic models or evaluated empirically. The current authors evaluate the primary tenets of the theory using the context of technological innovation and the changing power relationships of the air travel industry. Their work focuses on why key air travel industry players, especially the global distribution systems players (Amadeus, Galileo, Worldspan, and Sabre), have become vulnerable in the face of the new travel meta-search service providers’ technological innovations. The authors also provide evidence for two other tenets of the theory, including why the air travel reservations market has been attractive to attack—in spite of the long-standing dominance of the existing players—and why the incumbents have found it difficult to defend their positions. They emphasize that secondary technological intermediaries are creating the opportunity today for travelers to acquire uniquely informative bundles of related travel booking information that make it possible to increasingly select exactly the arrangements that match their exact needs. This paper was selected for the 2008 Best Paper Award in the Organizational Systems and Technology Track at HICSS 2008—one of just a handful at the conference.

In "Information Risk of Inadvertent Disclosure: An Analysis of File-Sharing Risk in the Financial Supply Chain," M. Eric Johnson analyzes what happens when a group of large financial services firms experiences the inadvertent loss of sensitive documents via P2P file-sharing networks. This study examines vulnerabilities on the part of the firms, as well as the patterns for what happens when losses occur, across the suppliers, contractors, and customers of the top 30 banks in the United States. The author’s data on 16,000 P2P searches come from a seven-week period from late December 2005 to mid-February 2006, and involve P2P file-sharing on the three largest networks and some of the related P2P file-sharing clients: Gnutella via Limewire and BearShare, FastTrack via Kazaa and Grokster, and eDonkey via eMule and eDonkey2000. The author examined the role of brand visibility opertionalized by a measure of firm size as a basis for the bank’s capacity to "draw fire" from the P2P community in terms of file searches. The results that were obtained show the surprising extent to which sensitive documents end up being widely shared on the Internet, and reveal that larger firms seem to have particular problems in this respect. The author concludes that larger banks need to take more than proportionally more care to protect their documents and files from unwanted disclosures than their smaller counterparts. This research points to the burgeoning set of research opportunities that exist at the intersection between security and IS discipline issues such as information disclosure, customer data privacy, and the protection of sensitive information and intellectual property.

The fifth paper of the Special Issue is by Ivan P.L. Png, Chen-Yu Wang, and Qiu-Hong Wang, entitled "The Deterrent and Displacement Effects of Information Security Enforcement: International Evidence." The authors study the efficacy of government enforcement of antihacking deterrence measures, and provide new evidence to suggest that vigorous enforcement in the United States has led to the movement of the various kinds of attacks to other parts of the globe, where lesser enforcement efforts make it possible to conduct the same kinds of fraudulent activities. The authors employ a sample of computer-based attacks via the Internet on 15 different countries between January 2004 and June 2006. To obtain their results, the authors integrated two different methodologies: an adaptation of event study methods coupled with linear regression. Overall, the authors did not find that unemployment levels in a country are associated with an increasing number of attacks, with the exception of the United States. The authors report limited evidence that more effort to enforce antihacking laws in a given country is associated with the deterrence of this form of criminal activity. They further note that delaying news about specific kinds of vulnerabilities that hackers might exploit is probably beneficial, because incidents of attack were found to have increased in the presence of such news.

The final three papers in this Special Issue relate to the application of experimental economics in online markets, the design and ownership structure of two-sided networks involving Internet intermediaries, and the comparative performance of financial economics and real option valuation methods for IT investments compared to unaided senior management strategic intuition. We have been showcasing the development of new ideas in each of these areas—auction markets, ownership theory, and IT investment decision-making methods under uncertainty—in this journal for many years now.

The sixth paper in this Special Issue is "Does Competition Promote Trust and Trustworthiness in OnlineTrading? An Experimental Study" by Gary Bolton, Claudia Loebbecke, and Axel Ockenfels. The authors conducted a set of online experiments involving tests of theory related to market efficiency and trust in the presence of networks of partners and networks of strangers, where sellers are likely to be affected by moral hazard. The key finding of this work suggests that the introduction of more competition in an online market is beneficial because the use of reputation as a means of discriminating among the trustworthiness of different participants becomes more reliable. More specifically, for networks of strangers, matching competition increases participant trust in the market mechanism and the perceived trustworthiness of counterparties to a transaction, but price competition leaves participant trust unchanged, while it diminishes the trustworthiness. In contrast, for networks of partners, both matching and price competition erase the advantage in trust and trustworthiness that partners networks have over strangers networks when there is no competition. The related conclusion by the authors is that the marketplace of strangers achieves higher aggregate social welfare from the overall gains in trade that are obtained.

The penultimate paper in our Special Issue is by Yannis Bakos and Evangelos Katsamakas, entitled "Design and Ownership of Two-Sided Networks: Implications for Internet Platforms." The authors observe that prior research has not fully evaluated the inner workings of two-sided intermediated networks. Two-sided networks are an instance of what economists have referred to as two-sided markets. In two-sided markets, there is a platform that acts as common ground in support of the participation of buyers and sellers, interactive game players, traditional and Internet-based television and radio broadcasting, or voice-over Internet protocol (VoIP) callers and call receivers. Quite a few interesting problems remain though. Some of the issues frequently omitted from prior modeling efforts include how participants’ benefits are determined, how value is split among the participants and the network intermediary, and how the choices and actions of the intermediary influence the value that is created in the process. The emphasis of their research is to provide theory- and model-based recommendations for how two-sided networks should be designed, and how limited budgets for technology investment should be targeted. The issue of ownership structure is an increasingly important one, since most digital intermediaries find that it is necessary for their business partners to co-invest to some extent in order to appropriate the greatest amount of value from various kinds of interorganizational IT infrastructures.

The final paper, "Uncertainty and Industry Structure Effects on Managerial Intuition About Information Technology Real Options," is by Nancy Lankton and Joan Luft, who compare real option-based valuation and the intuitive judgment of managerial decision makers involved in making IT investments. Their essential observation is that sometimes these match but other times they do not, and thus the authors’ goal is to explore the theoretical reasons why that may be the case. The authors explore regret theory and competitive behavior theories to distinguish between less and more aggressive valuations for deferral options and growth options involved in IT investments. They explain that uncertainty about IT investment returns on the part of the managerial decision maker is consistent with assigning higher value to deferral options and lower value to growth options, also reflecting the extent to which anticipated regret may play a role. In contrast, when there is a competitor that must be considered by the managerial decision maker, the dynamics change and the decision maker locks into a more aggressive valuation. The authors’ experimental study bears out the logic of the theoretical perspective that is offered, and points to the necessity of properly training managerial users of real option valuation methods so that they are less likely to make biased estimates.

We wish to acknowledge Hugh Watson, Vladimir Zwass, Nelson Granados, Arti Mann, and the anonymous reviewers who helped us to develop these papers for publication. They deserve our thanks.


1. Clemons, E.K.; Reddi, S.P.; and Row, M.C. The impact of information technology on the organization of economic activity: The "move to the middle" hypothesis. Journal of Management Information Systems, 10, 2 (Fall 1993), 9-36.