The Impact of IT on Market Information and Transparency: A Unified Theoretical Framework

Abstract

With the advent of the Internet, we have seen existing markets transform and new ones emerge. We contribute to the understanding of this phenomenon by developing a unified theory about the role that IT plays in affecting market information, transparency and market structure. In particular, we introduce a new theoretical framework which uncovers the process and the forces that, together with IT, facilitate or inhibit the emerging dominance of transparent electronic markets. Transparent electronic markets offer unbiased, complete, and accurate market information. Our effort to develop a unified theoretical framework begins with a thorough assessment of the prior literature. It also uses an inductive approach involving the case study method, in which we contrast and compare the forces that have led the air travel and financial securities markets to become increasingly transparent. Building on the electronic markets and electronic hierarchies research of Malone, Yates and Benjamin (1987), our findings suggest that IT alone does not explain a move to transparent electronic markets. Instead, we argue that enhanced electronic representation of products, and competitive and institutional forces have also played an important role in the process by which most sellers have come to favor transparent markets.