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The Essence of the New Economy

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  • Klodt, Henning
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    Abstract

    The New Economy should not be discounted as a temporary stock market phenomenon, but should be recognized as a real and sustainable phenomenon. The basic feature of the transition towards the New Economy is the rising importance of information—both as output and input good—in virtually all sectors of the economy. It would be fallacious to interpret the New Economy as a sector-specific phenomenon. Information increasingly constitutes a crucial input factor both in modern and traditional industries, and the information content of a final output is continuously rising throughout the economy. Present technological change, which is based upon modern information and communications technologies and on biotechnology, measures up to the industrial revolutions of past centuries. It would be premature, however, to identify fundamental trend shifts in aggregate productivity growth, because certain measurement issues are still unsettled and the observation period is still too short. Private firms must develop new business strategies in order to cope with potential market failure resulting from the properties of information goods as public goods, network goods, and experience goods. Bundling and versioning of products, attracting free riders, and —above all— establishing reputation are among the most important business strategies for the New Economy. The New Economy can be expected to reshape the structure of firms and industrial relations. On the one hand, reduced transaction costs will foster small, network-oriented niche suppliers. On the other hand, the New Economy will create substantial firm-size economies of its own—resulting from low marginal costs of information goods and competitive advantages from bundling and the exploitation of reputation. In addition, new types of incentive contracts that can serve to monitor knowledge-intensive activities will gain ground. Since human capital will replace physical capital as the crucial factor of production, improving the qualifications of the labor force is essential to successfully cope with adjustment challenges of the New Economy to the labor market. --

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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy (IfW) in its series Kiel Discussion Papers with number 375.

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    Date of creation: 2001
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    Handle: RePEc:zbw:ifwkdp:375

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    1. Yannis Bakos & Erik Brynjolfsson, 1997. "Bundling Information Goods: Pricing, Profits and Efficiency," Working Paper Series 199, MIT Center for Coordination Science.
    2. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
    3. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
    4. Williamson, Oliver E, 1973. "Markets and Hierarchies: Some Elementary Considerations," American Economic Review, American Economic Association, vol. 63(2), pages 316-25, May.
    5. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June.
    6. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
    7. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
    8. Erich Gundlach, 2001. "Interpreting Productivity Growth in the New Economy: Some Agnostic Notes," Kiel Working Papers 1020, Kiel Institute for the World Economy.
    9. Stefano Scarpetta & Andrea Bassanini & Dirk Pilat & Paul Schreyer, 2000. "Economic Growth in the OECD Area: Recent Trends at the Aggregate and Sectoral Level," OECD Economics Department Working Papers 248, OECD Publishing.
    10. Stanley M. Besen & Joseph Farrell, 1994. "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 117-131, Spring.
    11. Daniel Piazolo, 2001. "The New Economy and the International Regulatory Framework," Kiel Working Papers 1030, Kiel Institute for the World Economy.
    12. S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
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    Cited by:
    1. Walter Komar, 2003. "Standortbedingungen der Biotechnologiebranche - Eine Analyse zur Identifikation von Erfolgsfaktoren für Biotechnologiefirmen und Bioregionen," IWH Discussion Papers 176, Halle Institute for Economic Research.

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