Over the past two decades, numerous empirical studies have been conducted on the contribution of information technology (IT) to productivity and other measures of firm performance. However, few theoretical studies have attempted to explain the contingencies under which IT investments may or may not be valuable to a firm in a competitive market. This research proposes a duopoly competition model to study the impacts of IT investments on firm performance and productivity. We show that the extent to which a profit-maximizing firm benefits from IT investments is a function of, among other things, market sensitivities to the price and quality of the products and services offered by the firm and its competitor. We demonstrate that, under duopolistic competition, the effects of IT investments are not as deterministic as under monopolistic competition. We further show that the effect of IT investments on productivity, in a duopoly market, are contingent on market sensitivities to changes in the price and quality of products and services offered by the firm and its competitor, as well as on fixed and overhead costs being sufficiently large in relation to market size--an important condition in a monopoly market. Especially, the price sensitivity has a positive effect on the impact of IT investments on productivity and quality sensitivity has a negative effect. We submit that firms are better off making efficiency-enhancing IT investments if the market in which they operate is more price sensitive than quality sensitive.
The diffusion of network technologies and the developing interest in emerging organizational forms suggest that researchers ought to pay more attention to the development of "electronic partnerships." This preliminary investigation tests a theoretical framework relating two pivotal themes, power and trust, to the use of electronic data interchange (EDI). Separate models were tested incorporating two dimensions of EDI use: volume of transactions and diversity of EDI transaction sets. The relationships among supplier dependence, customer power, and EDI use were different for volume and diversity, suggesting unique conditions that predict each dimension. Interestingly, power was negatively related to the volume of EDI transactions indicating that, while electronic networks may facilitate easier exchanges, they may not necessarily lead to increases in the frequency of exchanges. The relationships among commitment, trust, and EDI use were also different for volume and diversity. Trust was related to diversity but not volume. Moreover, trust was related to increases in diversity of EDI use, in contrast to power, which was negatively related to diversity. This latter finding may offer an important prescription for managers who seek to expand the effective use of EDI and for IT researchers who need to focus on the role of trust in supporting information exchange between electronic partners.