When Ignorance Can Be Bliss: Organizational Structure and Coordination in Electronic Retailing
Authors: Liu, Dengpan; Tan, Yong; Mookerjee, Vijay
Journal: Information Systems Research (2018)
<jats:p> This study examines coordination issues that occur between the marketing department and the information technology (IT) department in electronic retail settings. We consider a marketing department that is responsible for choosing the level of advertising to generate traffic to the firm’s website and an IT department that is responsible for choosing IT capacity to provide web visitors a satisfactory experience. The focus here is to examine how duopolistic advertising competition among firms can affect the organizational structure (centralized or decentralized) within each firm. In essence, our interest lies in the question: How does the presence of interfirm competition affect intra-firm coordination (i.e., organizational structure)? As a benchmark, we develop and solve a centralized decision model wherein the levels of advertising and IT capacity are jointly chosen in each firm to maximize profit. This is compared with a decentralized decision model in which the marketing department could potentially advertise suboptimally because its assessment of IT factors (the served traffic rate) is inaccurate. We find that competition can lead to a decentralized equilibrium in which…