An Economic Analysis of the Introduction of an Electronic Data Interchange System
Authors: Barua, Anitesh; Lee, Byungtae
Journal: Information Systems Research (1997)
DOI: 10.1287/isre.8.4.398
<jats:p> Although electronic data interchange (EDI) holds the promise of significantly increasing the efficiency of business transactions, an installed base of proprietary implementations has been detrimental to the widespread acceptance of the technology. Thus, an important research issue involves strategies for facilitating EDI adoption. We analyze the introduction of an EDI system in a vertical market involving one manufacturer and two suppliers. The manufacturer initiates an EDI network, and penalizes a supplier for not joining the system by reducing its volume of business with the supplier. Along with a “stick,” the manufacturer can also use a “carrot” in the form of a subsidy to partially offset a supplier's setup cost. </jats:p><jats:p> The competition between the suppliers is characterized by incentive types for joining the EDI system (“motivating” or “threatening”) and the Information Technology (IT) efficiency (“efficient” or “inefficient”). We show that regardless of its cost structure, a supplier may have to join the EDI network out of “strategic necessity,” due to the presence of an IT-efficient supplier. Our analysis further shows that depending on the supplier compe…