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

This paper examines how the adoption of mobile information technologynetworks impact firm strategy and performance in the U.S. taxicabindustry. Using a rich, novel firm-level data set from the EconomicCensus, I test transaction cost economics' prediction that adoption ofmobile IT networks leads to shifts in the boundary of the firm towardincreased fleet ownership of vehicles. I then exploit the homogeneity ofthe industry's production function and exogenous variation in localmarket conditions to precisely measure the impact of adoption of mobileIT networks on productivity. I find strong evidence that firms respondto adoption of mobile IT networks by changing their organizationalstructure, shifting toward owning a greater fraction of vehicles intheir fleets (as opposed to contracting with independent driver-ownersfor vehicles). I then use a precise and economically meaningful measureof firm performance to show that adoption of mobile IT networks causesfirms to become more productive. The results suggest that adoption ofmobile IT networks increases asset utilization by improving within-firmcoordination but that firms must simultaneously shift toward a morehighly vertically integrated structure to fully capture the benefits ofmobile IT networks.