How Do Mobile Information Technology Networks Affect Firm Strategy and Performance? Firm-Level Evidence from Taxicab Fleets

Abstract

This paper examines how the adoption of mobile information technology networks impact firm strategy and performance in the U.S. taxicab industry. Using a rich, novel firm-level data set from the Economic Census, I test transaction cost economics' prediction that adoption of mobile IT networks leads to shifts in the boundary of the firm toward increased fleet ownership of vehicles. I then exploit the homogeneity of the industry's production function and exogenous variation in local market conditions to precisely measure the impact of adoption of mobile IT networks on productivity. I find strong evidence that firms respond to adoption of mobile IT networks by changing their organizational structure, shifting toward owning a greater fraction of vehicles in their fleets (as opposed to contracting with independent driver-owners for vehicles). I then use a precise and economically meaningful measure of firm performance to show that adoption of mobile IT networks causes firms to become more productive. The results suggest that adoption of mobile IT networks increases asset utilization by improving within-firm coordination but that firms must simultaneously shift toward a more highly vertically integrated structure to fully capture the benefits of mobile IT networks.