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Revolutionary Effects of New Information Technologies

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Author Info
van den Berg, Gerard J

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

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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  1. John Van Reenen, 2005. "The Growth of Network Computing: Quality Adjusted Price Changes for Network Servers," CEP Discussion Papers dp0702, Centre for Economic Performance, LSE. [Downloadable!]
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