Introduction to the Special Section: Economics of Electronic Commerce

Eric K. Clemons, Robert J. Kauffman, and Thomas A. Weber, Guest Editors
International Journal of Electronic Commerce,
Volume 15 Number 1, Fall 2010, pp. 75.

The economic and strategic analysis of electronic commerce is a research stream with enduring relevance, and one that continues to offer unique insights into effective management practice. This special section of the International Journal of Electronic Commerce showcases three papers that deal with issues at the intersection of e commerce and economics, and with a variety of related managerial practices. They offer different economic interpretations of how to create value in diverse e commerce settings. The articles involve the management of information access, the adoption of innovations in business practice, and the use of business networks to provide a means for coordinated multifirm production. The blend of economics and competitive strategy analysis the authors use–leveraging case studies, building theory, and modeling analytic method–provides a powerful interpretative lens for understanding new developments that are due to technology in different business settings.

The Internet has been responsible for fundamental changes in how organizations create value for the firms and individuals that do business with them. In the article that opens the special section, “Managing Information Access in Data-Rich Enterprises with Escalation and Incentives,” Xia Zhao and M. Eric Johnson explore how to establish appropriate data-access controls in the presence of technologies that support e commerce and e business practices. Properly managing investments in data and information privacy for customers and employees, and effectively dealing with the vulnerability of intellectual property, continue to be especially vexing problems for senior management. Zhao and Johnson’s methods allow firms to optimize their approach by dynamically altering access rights, giving employees access to information in a way that balances risks, costs, and benefits for the firm. Their main premise is that this problem can be solved using an information access escalation scheme. It must provide employees with information access to support their efforts to create business value, while forestalling unnecessary access that might lead to abuses of customer or firm information. The authors present a game-theoretic analysis based on a model that emphasizes the trade-off between access controls tied to performance incentives with the escalation of access that creates the impetus for achieving high performance. Their key insight is that audits of information access are necessary to complete the value-maximizing scheme from the firm’s point of view and that employees, when empowered by appropriate incentives, will almost always choose to act in a self-interested way that will simultaneously benefit the firm.

In the second article, Robert J. Kauffman, Ting Li, and Eric van Heck develop a number of propositions to construct a theory of “Business Network-Based Value Creation in Electronic Commerce.” Their central argument is that technology has changed the capabilities firms have to coordinate activities and support value creation, and that firms must engage in these processes in the presence of increasingly well-informed customers. The authors rely on economic theory to characterize the relevant conditions for business network formation, value creation in the presence of transformed consumer demand, and network stability and network duration. They do this based primarily on the economic theory of intermediation. In addition, the authors discuss what makes cross-organizational relationships in business networks valuable and how such value can be sustained over time. They explore a series of cases in the travel and hospitality industry that illustrate their propositions and central theory. Code-sharing alliances in the airlines industry illustrate how flexible alliance network operations support seamless airline travel through coordinated flight schedules, cross-organization frequent flyer program awards, and shorter transfer times based on optimized flight transfers. The authors also discuss the industry’s use of open standards as a means to support more flexible organizational data sharing and network operations in support of customer service demand. They conclude with a discussion of instances where lack of sustained creation of value destabilized a business network that provided consumer rewards for in-network purchases and where the lack of aligned incentives in a business network led to the defection of business partners.

The final article, contributed by Reina Y. Arakji and Karl R. Lang, is titled “Adoption and Diffusion of Business Practice Innovations: An Evolutionary Analysis.” Innovations in organizational business practices constitute one of the key ways that firms can create value for current and new customers, and build sustainable competitive advantage in the marketplace. The authors’ research uses theory from evolutionary economics, which has not been very much used in IS research. Coupling this with an evolutionary interpretation of organizational theory, they formulate a stochastic process model that explains how process innovations arise and propagate within a single firm and across firm boundaries. They reason by analogy with memes: unlike genes, which are transmitted only to descendants, memes can be adopted if they appear useful. The most powerful innovations in human history, like language, agriculture, or the use of the stirrup, seem to have exhibited memetic transmission. The article models the progress of innovations through an industry ecosystem, toward disappearance, survival, or dominant-standard status, based upon the survival advantage each offers the firm and the ease with which the innovation can be adopted by other firms.

These papers were developed through the Competitive Strategy, Economics and Information Systems Mini-Track of the 2010 Hawaii International Conference on System Sciences. We acknowledge the input of the anonymous reviewers who read these articles before their acceptance at HICSS and more recently from the referees for this journal. We are also grateful to Hugh Watson, chair of the Organizational Systems and Technology Track at HICSS, and to Vladimir Zwass, the editor-in-chief of the International Journal of Electronic Commerce, for inviting our contributions and those of our authors.

ERIC K. CLEMONS ( is professor of operations and information management at the Wharton School of the University of Pennsylvania. His education includes an S.B. in physics from MIT, and an M.S. and Ph.D. in operations research from Cornell University. He has been a pioneer in the systematic study of the transformational effects of information on the strategy and practice of business. His research and teaching interests include strategic uses of information systems, the changes that IT enables in the competitive balance between new entrants and established industry participants, transformation of distribution channels, the structure and governance of the IT functional area, and the impact of IT on the risks and benefits of outsourcing and strategic alliances. Industries of focus include international securities markets and financial services firms, consumer packaged goods retailing, and travel. He specializes in assessing the competitive implications of IT and in managing the risks of large-scale implementation efforts. Dr. Clemons is the founder and project director for the Wharton School’s Sponsored Research Project on Information: Strategy and Economics Within the Program for Global Strategy and Knowledge Intensive Organizations. He participated in the World Economic Forum in Davos, Switzerland, in February 2009. He is currently a member of the editorial boards of the Journal of Management Information Systems and International Journal of Electronic Commerce. Dr. Clemons has 35 years’ experience on the faculties of Wharton, Cornell, and Harvard, and consulting experience in the private and public sectors both in the United States and abroad.

ROBERT J. KAUFFMAN ( is the W.P. Carey Chair in Information Systems at the W.P. Carey School of Business, Arizona State University. His degrees are from the University of Colorado at Boulder, Cornell University, and Carnegie Mellon. He has served on the faculties of New York University, the University of Minnesota, and the University of Rochester, and worked in international banking and finance in New York City. His research interests span the economics of IS, market transparency and pricing on the Internet, competitive strategy and technology adoption, and theory development, modeling and empirical methods for IS research—all in contexts that emphasize senior management issues. THOMAS A. WEBER ( is an assistant professor in the Management Science and Engineering Department of Stanford University, where he is conducting research on optimal control of nonlinear systems, economics of information and uncertainty, analysis of complex systems, and corporate strategy and public policy. He holds undergraduate diplomas in industrial and electrical engineering from the Ecole Centrale Paris and the Technical University Aachen, as well as M.S. degrees in technology policy and electrical engineering and computer science from MIT. He also received an M.A. in operations and information management and a Ph.D. in management science and applied economics from the Wharton School of the University of Pennsylvania. During 2008, he was a visiting faculty member at the University of Cambridge. He was previously a senior consultant at the Boston Consulting Group. He was also recently the recipient of the David Morganthaler II Faculty Scholarship at Stanford. His research interests involve the economics of information and uncertainty, and how social systems can be modeled, designed, and controlled in the presence of uncertainty. He has been developing new theoretical models and methods that have the potential to change the way in which we approach social systems and integrate different levels of analysis. His published papers have appeared in Information Systems Research, Decision Support Systems, Economics Letters, Economic Theory, Journal of Mathematical Economics, Journal of Economic Dynamics and Control, Journal of Optimization Theory and Applications, and Optimal Control Applications and Methods.