Demand Uncertainty, Information Processing Ability, and Endogenous Firm: Another Perspective on the Impact of ICT

Abstract

This paper takes the firm as an information processing unit. It provides a model that involves the division of labour and specialization, and demand uncertainty. It shows that conditionally, a firm with information processing ability comes into being endogenously, with information rent generated. The size of the rent depends on the level of uncertainty, market competition, and the firm’s information processing ability. Information and Communication Technology is assumed to affect the information processing ability, therefore impacting on the rent. Finally, case studies on the wholesale and retail industry and the finance and insurance industry of 10 OECD countries are conducted