An economic analysis of interorganizational information technology

This paper first reviews some basic results on the economics of information technology (IT) and strategy. These results begin by developing a model of interorganizational IT, focusing on supplier-buyer interactions and the costs and benefits of IT in facilitating such interactions. The modeling framework incorporates economies of scale and scope, transactions specific sunk costs of IT development, and related issues of bargaining and opportunism. Results of the model are applied to the increasingly important topic of interorganizational information systems, addressing some of the risks of cooperative ventures that are frequently overlooked in the MIS literature.