Redefining Firm Boundaries in the Face of the Internet: Are Firms Really Shrinking?

I present two models for exploring the impact of the emergence and diffusion of the internet on vertical and horizontal firm boundaries. I argue that the effect of the emergence and diffusion of the internet on a firm's boundaries is a function of the firm's determinants of costs, moderated by the information dependence and tacitness of the firm's value-adding activities and the organizational technology that underpins the firm's primary activities. Contrary to previous research, the models suggest that the emergence and diffusion of the internet should also expand some firm boundaries.