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Ownership and Investment in Electronic Networks

Author

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  • J. Yannis Bakos

    (Center for Research on Information Technology and Organizations, Graduate School of Management, University of California, Irvine, California 92697)

  • Barrie R. Nault

    (Center for Research on Information Technology and Organizations, Graduate School of Management, University of California, Irvine, California 92697)

Abstract

We employ the theory of incomplete contracts to examine the relationship between ownership and investment in electronic networks such as the Internet and interorganizational information systems. Electronic networks represent an institutional structure that has resulted from the introduction of information technology in industrial and consumer markets. Ownership of electronic networks is important because it affects the level of network-specific investments, which in turn determine the profitability, and in some cases the viability, of these networks. In our analysis we define an electronic network as a set of participants and a portfolio of assets. The salient concept in this perspective is the degree to which network participants are indispensable in making network assets productive. We derive three main results. First, if one or more assets are essential to all network participants, then all the assets should be owned together. Second, participants that are indispensable to an asset essential to all participants should own all network assets. Third and most important, in the absence of an indispensable participant, and as long as the cooperation of at least two participants is necessary to create value, sole ownership is never the best form of ownership for an electronic network. This latter result implies that as the leading network participants become more dispensable, we should see an evolution toward forms of joint ownership.

Suggested Citation

  • J. Yannis Bakos & Barrie R. Nault, 1997. "Ownership and Investment in Electronic Networks," Information Systems Research, INFORMS, vol. 8(4), pages 321-341, December.
    • Handle: RePEc:inm:orisre:v:8:y:1997:i:4:p:321-341
    DOI: 10.1287/isre.8.4.321
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    Cited by:

    1. Wheatley, W. Parker, 2003. "Survival And Ownership Of Internet Marketplaces For Agriculture," 2003 Annual meeting, July 27-30, Montreal, Canada 22214, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Shadrack M. Mwangangi & Ombuki Charles & Gregory Odote, 2014. "Role of Information and Communication Technology Solutions on the Growth of Small and Medium Enterprises: Case of Nairobi County," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(9), pages 385-401, September.
    3. Fang Fang & Manoj Parameswaran & Xia Zhao & Andrew B. Whinston, 2014. "An economic mechanism to manage operational security risks for inter-organizational information systems," Information Systems Frontiers, Springer, vol. 16(3), pages 399-416, July.
    4. Büttgen, Marion & al.,, 2021. "Blockchain in Service Management and Service Research - Developing a Research Agenda and Managerial Implications," SMR - Journal of Service Management Research, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 5(2), pages 71-102.
    5. Francesco Bova & Avi Goldfarb & Roger G. Melko, 2023. "Quantum Economic Advantage," Management Science, INFORMS, vol. 69(2), pages 1116-1126, February.
    6. Amy Greenwald & Karthik Kannan & Ramayya Krishnan, 2010. "On Evaluating Information Revelation Policies in Procurement Auctions: A Markov Decision Process Approach," Information Systems Research, INFORMS, vol. 21(1), pages 15-36, March.
    7. Manas Ranjan Pani & Amit Agrahari & S. K. De & G. Sahoo, 2011. "Literature Review and Research Issues in e-Procurement," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 36(3), pages 225-246, August.
    8. Ashish Arora & Amy Greenwald & Karthik Kannan & Ramayya Krishnan, 2007. "Effects of Information-Revelation Policies Under Market-Structure Uncertainty," Management Science, INFORMS, vol. 53(8), pages 1234-1248, August.
    9. Rajiv D. Banker & Joakim Kalvenes & Raymond A. Patterson, 2006. "Research Note---Information Technology, Contract Completeness, and Buyer-Supplier Relationships," Information Systems Research, INFORMS, vol. 17(2), pages 180-193, June.
    10. Urbaczewski, Andrew & Jessup, Leonard M. & Wheeler, Bradley C., 1998. "A manager's primer in electronic commerce," Business Horizons, Elsevier, vol. 41(5), pages 5-16.
    11. Albert H. Segars & Varun Grover, 1999. "Profiles of Strategic Information Systems Planning," Information Systems Research, INFORMS, vol. 10(3), pages 199-232, September.
    12. Dipanjan Chatterjee & T. Ravichandran, 2013. "Governance of Interorganizational Information Systems: A Resource Dependence Perspective," Information Systems Research, INFORMS, vol. 24(2), pages 261-278, June.
    13. Byungjoon Yoo & Vidyanand Choudhary & Tridas Mukhopadhyay, 2007. "Electronic B2B Marketplaces with Different Ownership Structures," Management Science, INFORMS, vol. 53(6), pages 952-961, June.

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