Joining Supply and Demand Conditions of IT Enabled Change: Toward an Economic Theory of Inter-firm Modulation

This paper examines emergent information systems and technologies and explains under what supply and demand conditions inter-firm modularization of information-based products and services and subsequent vertical de-integration of organizations is more likely. Research in organizational economics identifies transactional attributes such as coordination costs, asset specificity, and the economic non-separability problem to help explain and predict vertical de-integration. We extend this perspective by considering the modularization of information-based products and services that is noticeable to the customer to develop a framework that joins the four cornerstones of (1) transaction-related efforts; (2) commitment-related contractual risks; (3) measurement-related contractual risks; and (4) modularization-related impacts on value.