Information Technology and Information Goods as Predictors of Organizational Expansion Activity

This research presents a model that separates the effects of the use of information technology (IT) in the production and distribution of goods from the degree of information in the product on changes in vertical and horizontal firm boundaries. The research tests and confirms the hypothesis that firms that produce higher levels of information goods tend to have different vertical and horizontal organizational boundaries when compared to non-information goods firms. Information goods producing firms may be subject to unusual economies of scale, scope, network externalities, and increasing returns effects. These effects are drivers for horizontal firm boundary expansion. Further, the research partially tests the electronic markets hypothesis, which argues that information technology influences the dismantling of extensive vertical firm boundaries by lowering firm transactions costs, finding some supportive results. The research also tests for the hypothesized effect of information technology use in enabling expanding horizontal firm boundaries. Chi square and MANOV A analyses, using two years of merger, acquisition and alliance event data on a sample of 317 very large firms were conducted, while controlling for firm revenues. The results suggest that information goods producing firms have structures that are driven by the unique economics of manufacturing and marketing information products, as well as the transactional and agency effects of information technology used in production