liances will have a significant effect on the market structure of not just the United States, but also the world, as demonstrated by the continuing attempts to merge America Online (AOL) with Time-Warner to create the largest entertainment firm in the world. Additionally, many high-tech companies that in fact wish to remain independent are now finding it necessary to enter into strategic alliances with firms developing competing technologies in an attempt to protect their own share of the market (Greenspan, 2000). Advances in information technology have also fostered mergers that allow firms to take greater advantage of economies of scale and thus reduce costs. On the other hand, the effect of many such mergers raises questions of monopolies and antitrust violations. As this paper will demonstrate, the traditional theories of diminishing returns and economies of scale have mutated application in a world characterized by information technology.
Thus, the development of information technology and its application to a firm's organizational structure gave rise to greater vertical integration within firms as well as greater horizontal relationships across firms. Initially, most firm networks were based upon proprietary systems that ran over expensive leased telecommunications circuits. Consequently, firms were required to make highly specific investments to join a network (Steinfield, 2000). And the hardware and software needed to connect to one supplier or customer would not necessarily work across the board.
The shifts in value added as a percentage of revenue in various channels of the information technology industry over the last twenty years demonstrate the influence on market structure of the possession of information technology knowledge. The most recent data available on the strategic landscape of the information technology market structure in the United States, obtained from the Economic Census conducted by the Bureau of the Census for the period