Information Technology, Firm Size, and Industrial Concentration

58 Pages Posted: 1 Mar 2023 Last revised: 6 Mar 2023

See all articles by Erik Brynjolfsson

Erik Brynjolfsson

National Bureau of Economic Research (NBER); Stanford

Wang Jin

Stanford Digital Economy Lab

Xiupeng Wang

Northeastern University - D’Amore-McKim School of Business; Stanford Digital Economy Lab; Boston University

Multiple version iconThere are 2 versions of this paper

Date Written: February 26, 2023

Abstract

Information flows, and thus information technology (IT) are central to the structure of firms and markets. Using data from the U.S. Census Bureau, we provide firm-level evidence that increases in IT intensity are associated with increases in firm size and concentration in both employment and sales. Results from instrumental variables and long-difference models suggest that the effect is likely causal. The effect of IT on size is more pronounced for sales than employment, which leads to a decline in the labor share, consistent with the “scale without mass” theory of digitization. Furthermore, we find that IT provides greater benefits to larger firms by increasing their capability to replicate their operations across establishments, markets, and industries. Our findings provide empirical evidence suggesting that the substantial rise in IT investment is one of the main driving forces for the increase in firm size, decline of labor share, the growth of superstar firms, and increased market concentration in recent years.

Keywords: IT Investment, Firm Size, Labor Shares, Industrial Concentration

JEL Classification: L11, L22, L25, O33

Suggested Citation

Brynjolfsson, Erik and Jin, Wang and Wang, Xiupeng, Information Technology, Firm Size, and Industrial Concentration (February 26, 2023). Available at SSRN: https://ssrn.com/abstract=4371461

Erik Brynjolfsson

National Bureau of Economic Research (NBER) ( email )

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Wang Jin

Stanford Digital Economy Lab ( email )

Stanford, CA 94305
United States

Xiupeng Wang (Contact Author)

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Stanford Digital Economy Lab ( email )

Stanford, CA 94305
United States

Boston University ( email )

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Boston, MA 02215
United States

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