Dynamics of the Internet

When the application of Internet emerged a new opportunity opened up for studying how new technology influences industry structure. Banking and financial service sector was an early adopter. A former period of deregulation had paved the way for a market conform behavior. The Internet technology is supposed to explain productivity growth. Our results suggest that productivity positively correlates with the change in innovation output, controlling for the skill composition of labor and the physical capital intensity. When Internet was introduced the structure changed in the studied thirteen Swedish banking sub-industries. The large companies could reduce the number of employees and the small financial firms increase their employees. The number of firms grew and the average firm size decreased. The Internet changed the economic conditions for entry. The industry went through a transformation and got a new structure due to a former deregulation followed by the introduction of a new technology. Smaller firms expanded and larger corporations raised their productivity. The new technology, Internet, has a positive and significant influence on industry growth.