The Influence of Information Technology on 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 knowledge by an individual or group of individuals within a firm should lead to a more efficient vertical integration of the firm's activities. Second, the increased efficiency of the firm's vertical integration will likely lead to outsourcing of inefficient production activities. Before the advent of access to almost instantaneous information availability, most business decisions were hampered by uncertainty. Because firms had limited and lagging knowledge of customers' needs and the l...