Researching the Costs of Information Systems

Abstract:

This paper explores the issue of scale economies in the construction of information systems. Economic theory is used to identify transaction attributes that contribute to scale economies and the concept of an information system is then decomposed into separable components. Each component is analyzed with respect to the availability of one or more of the sources of scale economy. The analysis finds that each component possesses at least some potential for realizing scale economies and that some components may realize very large per-unit cost savings as scale of system use or capability is expanded. The implications of these findings for the organization of information services, including outsourcing, are highlighted and illustrated with consistent examples from IS-intensive industries. Future research is proposed with respect to the actual nature of IS scale economies; the presence of scope economies with respect to multicomponent systems; the relative importance of production costs, transaction costs, and benefits as determinants of acquisition choice; and the impact of IS acquisition method on the organization of firms and industries.

Key Words and Phrases::

• economies of scale
• information economics
• information services
• transaction costs

Additional information

Notes on contributors

Lawrence A. West

Lawrence A. West, Jr. is an Assistant Professor in the Department of Information and Management Sciences in the College of Business at the Florida State University. He teaches decision support systems, expert systems, database design, and management science courses. His research interests center around the economics of information including how information systems change information constraints and so affect the organization of firms and industries and how the IS resources themselves are acquired and organized. Dr. West received an A.B. in economics from the University of California, Davis, in 1976, an M.B.A. from the University of Arizona in 1981, and a Ph.D. in business analysis from Texas A&M University in 1991. He has previously published in Decision Sciences.