Competing Value Networks, Incomplete Contracts and IT

Does the nature of industry competition shift from the level of firm to the level of whole value networks/chains? What is the role of IT in that process? We analyze the structure of competition between value networks in a setting where partners invest in quality and the end-consumer market is vertically differentiated. The main result is that as quality at the end-consumer market becomes more important the industry structure is more likely to shift to competition between value networks. IT is a crucial enabler of the industry shift through a demand-side and a supply-side effect: (a) IT can make quality more important for consumers, and (b) IT reduces the cost of investment in non-contractibles in buyer-supplier relationships.