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Making Lemonade from Lemons: A Transaction Cost Economics Perspective on Third-Party Disruptions in a Multivendor Information Technology Service

Author

Listed:
  • Haoyuan Liu

    (Division of Information Technology and Operations Management, Nanyang Business School, Nanyang Technological University, Singapore 639956)

  • Wen Wen

    (McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

  • Anitesh Barua

    (McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

  • Andrew B. Whinston

    (McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

Abstract

In modern enterprise computing environments, multiple information technology (IT) services from first and third parties are often integrated to form coherent solutions for business customers. Using transaction cost economics (TCE) as a theoretical foundation, we seek to understand how uncertainties introduced by third-party services shape enterprise customers’ use of various IT services in these multivendor service settings. Specifically, we analyze a case of service disruption caused by a third party that affects the multivendor service but does not directly affect the first-party services. In line with the tenets of TCE, we find a temporary increase in the use of first-party services that can serve as a similar-goal substitute to fulfill the organization’s needs during the disruption; however, on average, we observe a net decline in the total use of services in the long run. We empirically analyze the role of first-party technical support during the disruption. Based on textual data from the first party’s technical support log, we use deep learning to assess what actions the first party can take during such disruptions to turn the challenge into an opportunity. We find that if the first party offers high-quality technical support that specifically addresses issues related to its product, it may be able to make lemonade out of lemons. Such technical support effectively boosts customers’ use of first-party services in the long run. Curiously, however, similar efforts by the first party in the predisruption period are ineffective in achieving the same effect.

Suggested Citation

  • Haoyuan Liu & Wen Wen & Anitesh Barua & Andrew B. Whinston, 2025. "Making Lemonade from Lemons: A Transaction Cost Economics Perspective on Third-Party Disruptions in a Multivendor Information Technology Service," Information Systems Research, INFORMS, vol. 36(1), pages 41-60, March.
    • Handle: RePEc:inm:orisre:v:36:y:2025:i:1:p:41-60
    DOI: 10.1287/isre.2022.0033
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