Information technology investment strategies under declining technology cost

• 成果类型: Article; Proceedings Paper
• 署名作者: Demirhan, D; Jacob, VS; Raghunathan, S
• 署名单位: Nevada System of Higher Education (NSHE); University of Nevada Las Vegas; University of Texas System; University of Texas Dallas
• 刊物名称: JOURNAL OF MANAGEMENT INFORMATION SYSTEMS
• ISSN/ISSBN: 0742-1222
• DOI: 10.2753/MIS0742-1222220311
• 发表日期: 2005
• 页码: 321-350
• 关键词: product; compatibility; BUSINESS; QUALITY; entry; COMPLEMENTARITY; performance; CAPABILITY; RESOURCES; FRAMEWORK

摘要

Investments in information technology (IT) have become crucial for firms to improve the quality of their products and services. Typically, IT cost for the same performance level declines over time. In a competitive market, a decline in IT cost over time provides a cost advantage to the later entrant, making the early entrant's investment decision problem challenging. In this paper, we study the problem of strategic IT investments in the declining cost scenario using a sequential duopoly model. Our results show that declining IT cost intensifies or relaxes competition between firms depending on whether they are serving quality- or price-sensitive markets. In both cases, the average price per unit quality decreases when the IT cost declines, which benefits consumers. We also show that if the first entrant is uncertain about the extent of its cost disadvantage, the first entrant overinvests (underinvests) in a price-sensitive (quality-sensitive) market as the degree of uncertainty increases.