Information Technology and Market Structure

Today, information is vastly more available in real time than it has even been in the world's history, as demonstrated by developments such as electronic data interfaces between retail checkout counters and the factory floor or the location of delivery and storage trucks through global positioning satellites (GPS) (Greenspan, 2000). The net effect of such availability is that businesses are now able to manage inventory and personnel more efficiently. Traditionally, firms employed redundant production activities and worker to insure their sustained valued output although these redundancies produced nothing of value (Greenspan, 2000). Now, such redundancies and insurances can be scaled back, a trend that Federal Reserve Chairman Alan Greenspan predicts will only increase as the Internet alters relationships of businesses to their suppliers and their customers (Greenspan, 2000). And the resources that were tied up in such insurances can be released and directed toward increased output and aggressive attempts to increase market share. Undoubtedly, such changes could have a significant effect on market structure as we now understand it.

The fundamental contribution of information technology is the expansion of knowledge, which is necessarily accompanied by a reduction in uncertainty (Greenspan, 2000). This becomes relevant for market structure in several ways. First, the expansion of knowledg

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chnology sector value added at the expense of the traditional vendors (Steinfield, 2000). The shifts in value added as a percentage of revenue in various channels of the information technology industry over the last twenty years demonstrate the influence on market structure of the possession of information technology knowledge. The most recent data available on the strategic landscape of the information technology market structure in the United States, obtained from the Economic Census conducted by the Bureau of the Census for the period covering 1987 to 1992, show that the information technology sector generated value added of $198.7 billion on sales of $373.5 billion (value added was 53 percent of revenue) in 1992. However, this ratio varied significantly across segments. The manufacturers' value added in computer systems was 42 percent of revenue, 69 percent of revenue for semiconductor manufacturers, 62 percent of revenue for internetworking equipment manufacturers and 81 percent of revenue for software and service providers (Steinfield, 2000). But during the period from 1987 through 1992, value added as a percent of revenue fell substantially for computer systems suppliers, while the other segments - semiconductors, soft
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