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Revolutionary Effects of New Information Technologies

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  • van den Berg, Gerard J

Abstract

In markets with imperfect information and heterogeneity, the information technology affects the rate at which agents meet, which in turn affects the distribution of production technologies across firms. We show that in models for such markets there are typically multiple equilibria because reservation utility levels and the lowest production technology in use affect each other. The adoption of novel information technologies may then entail a revolution in the sense of a move from an inefficient to an efficient equilibrium. Inefficient production technologies are removed even in sectors where the new information technology has only recently been introduced. The effect is much larger than a marginal comparative-statics effect on a given equilibrium. The results apply to markets for consumer products, labour, intermediate goods, and (public) institutional services.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5147.

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Date of creation: Jul 2005
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Handle: RePEc:cpr:ceprdp:5147

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Keywords: heterogeneity; imperfect information; informational frictions; internet; price convergence; production technology;

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Cited by:
  1. John Van Reenen, 2005. "The growth of network computing : quality adjusted price changes for network servers," LSE Research Online Documents on Economics 772, London School of Economics and Political Science, LSE Library.

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