The impact of computer-mediated communication on the processes and outcomes of negotiated transfer pricing

New communication technologies are offering organizations options that were not previously available. These new opportunities have the potential to impact many aspects of the organization, including coordination and control efforts. Despite a growing literature concerning computer-mediated communication, the basic question of whether the simple switch from written to computer-mediated communication changes behavior still remains unanswered. We argue that advanced information technology has created a frame with enabling and limiting impacts that exists even when the major characteristics are not present. This paper reports the results of a laboratory experiment concerning the effects of communication medium on the process and outcomes of negotiations in a transfer pricing situation. An organizational coordination mechanism and its interactions with communication medium were also examined. Structured negotiations were communicated through written exchanges and through computerized networks where the media richness and technical system capabilities were the same in both media. The negotiation process and outcomes were both measured. The results show that communication medium does effect both the process and outcomes of negotiations, even when media richness and system capabilities are the same in both media. Computer-mediated communication took fewer rounds of negotiation to reach an agreement, leading to an improved process, but had lower outcomes with lower firm profit and lower perceived autonomy. Thus, these results support our argument that medium provides a frame that affects behavior even when the major characteristics of the medium are absent. Further, medium interacts with arbitration, demonstrating the importance of considering other coordination and control mechanisms when examining the impact of medium.