Abstract
Based on transaction cost theory, this paper provides the rationale for why firms exist in cyberspace - that is, virtual firms exist because they can reduce transaction costs in internet-based industrial activities. Accounts of firms e-strategies differ widely. Here, we draw on institutional theory to propose that, to compete successfully in cyberspace, firms may create an internet-based organizational field, capable of reducing transaction costs caused by bounded rationality, opprtunism, market uncertainty and complexity, and asset specificity. A comparative case study of TSMC and Trend Micro is employed to illustrate our argument.