| The widespread adoption of Information Technologies, especially the emergence of Internet and electronic commerce, is transforming and reshaping business architectures and causing firms to adopt new strategies. The effects of IT are being found creating the basis for new ways of doing business, and putting pressure on traditional market structures. The dissertation addresses this topic by focusing on firms' optimal strategies while taking into account consumers' choices and the impact on market structure.; First, the thesis addresses how information technology transforms firms' vertical relationships. A model in which upstream firms can sell to customers directly and through intermediaries is examined. Consumers engage in time consuming search for the best price and discount future returns while heterogeneous intermediaries compete with each other and with the upstream firms' direct sales. The unique equilibrium is derived and the conditions when the upstream firms utilize both channels in parallel or either one exclusively are studied.; Next I move the focus onto the horizontal relationships between competing firms. I develop a game theoretic model of alliance formation in a three-firm environment to examine the effect of alliance on the competition in the industry. In a static state, the alliance, in the form of a specific distribution agreement, increases the profitability of both of the partners. The outsider, however, may be worse off from staying out of the alliance. However, this kind of alliance may not be formed given the firms' belief about their self-learning result in the future.; Finally, the thesis addresses the problem of how a profit maximizing web site manager allocate the web space trading off the profitability of the advertisements and the attractiveness of the web site to potential visitors. The problem is modelled as a control problem for a web site manager who is maximizing the net present value of cash flows by controlling the amount of advertising and content over its life. The model is calibrated and justified using web site advertisement and audience data. A new measure of web site traffic is developed and it is statistically significant in explaining the market value of content for Internet firms. |
