FREE online courses on Information Technology - Chapter 3 THE IMPACT OF
INFORMATION TECHNOLOGY - THE IMPACT OF TECHNOLOGY ON MARKETS
There is a great deal of interest in the impact of technology
on markets and the industry structure. Earlier in this chapter we saw how
technology impacted two industries, airlines and securities. In the case of the
securities industry, IT helped improve the quality of markets. Technology made
it possible to process the large volume of transactions that resulted from
market growth. It also enabled new trading strategies that affected the
operation of markets. These new strategies led to a linking of the equities and
futures markets, creating greater interdependence than existed before.
In the case of the airlines, the reservation systems began to
solve operational problems. Soon they evolved into systems to provide a
competitive advantage to the CRS vendor. Government regulation tends to reduce
the advantage to the point that American Airlines now feels it is providing a
market and services but is not getting extra market share from the system. (It
does, however, earn substantial revenue in fees from its CRS subsidiary).
We can look at the impact of IT on the marketplace from the
perspective of electronic markets and hierarchies. An electronic market exists
when IT is used to provide information or it actually becomes the market. The
airlines CRSs have evolved to an electronic market; the major systems consist
fare and flight information on the majority of scheduled airlines in the world;
these systems take complex information on schedules and fares and make it easily
available for the travel agent and the public. NASDAQ, the electronic stock
exchange for over the counter (OTC) stocks, is the market itself.
Firms coordinate their activities through markets because
they buy inputs and sell their outputs. Malone, Benjamin, and Yates (1987) draw
on the field of transactions cost economics to describe another kind of
marketplace become very high, the firm may be able to reduce coordination costs
by management. For example, if a company needs a very complex machine, it may be
easier to contact one supplier whom the firm knows is capable of designing the
machine rather than expend the effort in a futile search of the marketplace. The
authors show that IT can have different and sometimes conflicting impacts on the
use of markets for coordination. Overall they feel that IT will lead away from
single-source suppliers to electronic markets. The explosion interest in the
Internet and electronic commerce suggests that a movement toward electronic
markets is well underway. As this trend continues, IT will dramatically impact
industry structures and the economy itself.
