Abstract: In the competitive market of B2B E-commerce website, as user switching costs and network externalities could prevent users to switch to later entrant, the earlier entrant has the advantage to build and retain its market share. However, the declining cost of information technology (IT) over time provides the later entrant a cost advantage. In order to maintain competitive advantage, what should the early and late entrant's investment strategies be in the presence of user switching costs, network externalities, and declining IT cost? To analyze this question, considering these three factors, information investment strategy model of a duopoly with sequentia entry l is developed and the impact of these three factors on IT investment strategy is discussed. The results show that, with the declining IT cost, the early entrant may increase its investment in quality, adopting an aggressive investment strategy when switching costs are high. Otherwise, the later entrant may increase its investment in quality, adopting an aggressive investment strategy, and could offer a higher-quality system and capture a higher market share when switching costs are low. With the enhancement of network externality, the early entrant may increase its investment in quality, adopting an aggressive investment strategy, the later entrant may decrease its investment in quality, adopting a defensive investment strategy.

Key words: IT investment strategy, declining IT cost, switching costs, network externalities, B2B e-commerce website