Using IT to Open Previously Unprofitable Markets

It is now widely accepted that Information Technology can make firms more efficient and has created a host of new markets. Yet IT could also open up previously unprofitable markets. In this paper, we look at this phenomenon. We begin with a traditional economic production model and identify when firms will not enter a market. Specifically, we focus on the problem of high fixed costs and limited market size. Then we introduce technology into the model to identify cases where IT could make it profitable to enter the market. Although IT doesn’t always translate into potential profitability, we find that IT may help firms enter previously unprofitable markets when compared to non-IT enabled firms.