Relative Industry Concentration and Customer-Driven it Spillovers

Information Systems Research Vol. 23, No. 2, June 2012, pp. 340–355

16 Pages Posted: 29 May 2015

See all articles by June Cheng

June Cheng

Hong Kong Polytechnic University - Faculty of Business

Barrie R. Nault

University of Calgary - Haskayne School of Business

Date Written: 2012

Abstract

We examine how one industry’s productivity is affected by the IT capital of its customers and how this effect depends on industries’ relative concentration. These customer-driven IT spillovers result from customers’ IT investments in various information systems that reduce transaction costs through information sharing and coordination and lead to more efficient production and logistics upstream. The magnitude of IT spillovers depends on relative industry concentration because customers in more concentrated industries relative to those of their suppliers are better able to retain the benefits from their IT investments. We model customer-driven effects based on production theory and empirically test the model using two industry-level data sets covering different and overlapping time periods (1987-1999 and 1998-2005), different scopes of the economy (manufacturing only versus all industries), and different levels of industry aggregation. We find that, given an increase in a downstream industry’s IT capital, there is a significant increase in downstream industry output as well as significant increases in upstream industry output. Moreover, the magnitude of IT spillovers is related to relative industry concentration: A 1% decrease in a customer’s relative industry concentration increases spillovers by roughly 1%. Thus, further increases in IT capital can be justified along the supply chain, and an industry’s relative concentration — which can reflect market power — in part determines the distribution of productivity benefits.

Keywords: business value of IT; IT-enabled supply chains; economics of IS; spillovers; production function framework; input-output tables; industry concentration

Suggested Citation

Cheng, June and Nault, Barrie R., Relative Industry Concentration and Customer-Driven it Spillovers (2012). Information Systems Research Vol. 23, No. 2, June 2012, pp. 340–355. Available at SSRN: https://ssrn.com/abstract=2604302

June Cheng

Hong Kong Polytechnic University - Faculty of Business ( email )

Hung Hom, Kowloon
Hong Kong

Barrie R. Nault (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

HOME PAGE: http://ucalgary.ca/bnault

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