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Introduction
We no longer need to imagine a world in which trade is conducted through an electronic web of computers and communication devices largely unregulated by nations; that network is known as the Internet. Internet commerce, or e-commerce, describes the commercial activities over this worldwide network or "Web."As indicated in Figure 1, according to the Forrester Research Group, in 1997, U.S. Internet commerce accounted for $8 billion goods and service; by 2002, Internet commerce in is forecast to rise to $327 billion.
Organizational Economic Theory and the E-Commerce
Because the Internet is such a recent phenomenon, empirical models that predict specifically the behavior of firms engaged in e-commerce need to be developed. However, organizational economics provides a useful framework for describing the behavior of firms engaged in e-- commerce (Barney & Ouchi, 1986). Organizational economic theory states that firms seek strategies that minimize their costs of negotiating and governing transactions across markets by changing their structures (Jones & Hill, 1988). Controlling agency costs, that is, costs associated with monitoring managers and cooperative partners, is crucial to profitability. Thus, organizational economic theory posits that the "grand strategy" of profitability in doing business over the Internet will be to minimize transaction costs associated with Internet service providers (ISPs) and other middlemen by expanding a firm's control over transactions.
A key element in cost control in any business process is limiting assets used in performing organizational functions. Organizational economic theory holds that when assets are allocated for a specific purpose, they cannot be used for other purposes (Barney). It is assumed that agents waste assets because the agent will act to increase its own benefits; the agent's and principal goals naturally differ (Borys & Jamison, 1989; Ghoshal & Moran; Hill, Hitt, & Hoskisson, 1992).
The specific control of limited assets, the monitoring of agents, gaining maximum flexibility in the ability to redirect assets, and acquiring benefits associated with the agent's assets represent the current center of organizational economics research.
Information as a Nonlimiting Asset
Information is a new asset form; it cannot be thought of in the same way as property, plant and equipment. Information confounds traditional organizational economic analysis because unlike conventional assets that are "specified" once and are, essentially, depleted as transferred, information can be sold...