The article explores the impact of information systems (IS) on organizations and markets, focusing on how IT affects firm size and the allocation of decision-making authority. It begins by discussing economic theories of organization, including agency theory and transaction cost economics, which provide a foundation for understanding the costs associated with internal and external coordination. Agency theory highlights the costs of aligning the interests of principals and agents, while transaction cost economics emphasizes the costs of using markets and the role of firms in reducing these costs. The article then analyzes the roles of IS in organizations, such as improving operational efficiency, processing transactions, supporting decision-making, monitoring and evaluating performance, and maintaining documentation and communication. Modern IT is shown to reduce decision information costs and agency costs, leading to more centralized management in some cases and decentralization in others, depending on the specific cost structures of the firm and the industry. Finally, the article examines how IT affects firm size by changing the cost structure of firms. IT can reduce external coordination costs, leading firms to rely more on markets rather than vertical integration. It can also reduce internal coordination costs, allowing firms to manage larger organizations effectively, thus increasing firm size. The net effect of IT on firm size is influenced by the trade-offs between operational economies of scale and the costs of internal and external coordination. Overall, the article contributes to the understanding of how information systems affect organizational structure and market dynamics, providing a comprehensive economic perspective on the role of computer-based information systems.The article explores the impact of information systems (IS) on organizations and markets, focusing on how IT affects firm size and the allocation of decision-making authority. It begins by discussing economic theories of organization, including agency theory and transaction cost economics, which provide a foundation for understanding the costs associated with internal and external coordination. Agency theory highlights the costs of aligning the interests of principals and agents, while transaction cost economics emphasizes the costs of using markets and the role of firms in reducing these costs. The article then analyzes the roles of IS in organizations, such as improving operational efficiency, processing transactions, supporting decision-making, monitoring and evaluating performance, and maintaining documentation and communication. Modern IT is shown to reduce decision information costs and agency costs, leading to more centralized management in some cases and decentralization in others, depending on the specific cost structures of the firm and the industry. Finally, the article examines how IT affects firm size by changing the cost structure of firms. IT can reduce external coordination costs, leading firms to rely more on markets rather than vertical integration. It can also reduce internal coordination costs, allowing firms to manage larger organizations effectively, thus increasing firm size. The net effect of IT on firm size is influenced by the trade-offs between operational economies of scale and the costs of internal and external coordination. Overall, the article contributes to the understanding of how information systems affect organizational structure and market dynamics, providing a comprehensive economic perspective on the role of computer-based information systems.