Understanding the Business Value of Information Technology Investments: Theoretical Evidence from Alternative Market and Cost Structures.

Author List: Thatcher, Matt E.; Pingry, David E.;

Journal of Management Information Systems, 2004, Volume 21, Issue 2, Page 61-85.

This paper develops a series of two-stage duopoly models of quality-price competition and a series of monopoly models of quality-price choice in order to examine the impact of information technology (IT) investments on firm profit, firm productivity, and consumer welfare. We solve the duopoly and monopoly models for four cost functions, where each function makes a different assumption about the form of the marginal cost of production. These models are used to conduct a two-by-four comparison [(monopoly, duopoly) x (four cost functions)] of the impact of IT investments on economic performance. The analysis reveals that together market structure and cost structure play a critical role in determining the form of the relationship between IT investment and economic measures. Specifically, moving from monopoly to duopoly and moving from zero marginal cost to marginal cost as a function of quality increase the number of economic measures for which the directional effects of IT investment are ambiguous, or depend on model parameter values.

Keywords: business value; consumer welfare; economic analysis; information technology investments; information technology value; productivity

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#5	0.375	consumer consumers model optimal welfare price market pricing equilibrium surplus different higher results strategy quality cost lower competition firm paper
#271	0.237	technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater
#102	0.094	choice type functions nature paper literature particular implications function examine specific choices extent theoretical design discussion value widely finally adopted
#226	0.084	models linear heterogeneity path nonlinear forecasting unobserved alternative modeling methods different dependence paths efficient distribution probabilities demonstrate observed heterogeneous probability
#148	0.075	productivity information technology data production investment output investments impact returns using labor value research results evidence spillovers industries analysis gains
#161	0.050	role relationship positively light important understanding related moderating frequency intensity play stronger shed contribution past considered maintenance effort effect specifically