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Heterogeneity and Information Spillovers in Web Service Sourcing



This paper studies the role of firm heterogeneity and information spillovers in the sourcing decision to provide web services. To this end, we develop a theoretical model that relates these factors to firms' decisions to outsource or use in-house resources (insource). Based on this theoretical framework, we further construct an econometric model. Using our estimated model, we investigate why insourcing of web services is much more prevalent than outsourcing. We find that insourcing is likely to generate the higher value for most firms, and lack of information on the efficacy of outsourcing is unlikely to account for the dominance of insourcing over outsourcing. Therefore, differences in firm choices with regard to web services provision is primarily driven by firm heterogeneity, rather than by information spillovers.

Suggested Citation

  • George Deltas & Seung-Hyun Hong, 2009. "Heterogeneity and Information Spillovers in Web Service Sourcing," Working Papers 09-20, NET Institute, revised Sep 2009.
  • Handle: RePEc:net:wpaper:0920

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    References listed on IDEAS

    1. Chris Forman & Avi Goldfarb & Shane Greenstein, 2008. "Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 295-316, June.
    2. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 339-376.
    3. Hubbard, Thomas N, 2001. "Contractual Form and Market Thickness in Trucking," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 369-386, Summer.
    4. Angelique Augereau & Shane Greenstein & Marc Rysman, 2006. "Coordination versus differentiation in a standards war: 56K modems," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 887-909, December.
    5. Forman, Chris & Goldfarb, Avi & Greenstein, Shane, 2005. "How did location affect adoption of the commercial Internet? Global village vs. urban leadership," Journal of Urban Economics, Elsevier, vol. 58(3), pages 389-420, November.
    6. Seung-Hyun Hong & Leonardo Rezende, 2007. "“Lock-In and Unobserved Preferences in Server Operating System Adoption: A Case of Linux vs. Windows"," Working Papers 07-05, NET Institute.
    7. George P. Baker & Thomas N. Hubbard, 2003. "Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information," American Economic Review, American Economic Association, vol. 93(3), pages 551-572, June.
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    More about this item


    heterogeneity; information spillovers; outsourcing; switching regression;

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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