Information and industry dynamics
Yörükoğlu, Mehmet and Dinlersöz, Emin M. (2005) Information and industry dynamics. (Submitted)
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Technologies that spread commercial information from firms to consumers have gradually improved over time, through newspaper, radio, television and, most recently, the Internet. This paper explores how such a decline in the cost of information dissemination can change industry structure and dynamics. A dynamic industry model is developed, in which firms gradually acquire customers by disseminating information about themselves in the form of informative advertising. The equilibrium properties of the model are analyzed and compared with the empirical regularities pertaining to firm and industry dynamics. Finally, the effects of exogenous improvements in the cost of information dissemination on firm entry, growth and exit, price dispersion across firms, and industry concentration are considered.
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