Information, institutions, and firm organization: A caselet on the Hong Kong personal services sector

This paper describes how innovations in information technology led to a large structural change in the organization of the personal services business sector in Hong Kong. Initially this sector was characterized by high search costs on the part of customers and high costs of advertising on the part of the providers of personal services. Due to these high information and search costs, the efficient organizational form was one in which firms hired multiple workers and customers visited these firms to purchase services. This organizational form reduced search costs for customers and also provided economies in the way sellers could provide information. After the innovation of internet-based provision of information, the search cost for customers and the advertising cost for suppliers were dramatically reduced. Given Hong Kong's regulatory institutions, under the new information and search cost conditions the efficient organizational form was for individual workers to become independently-operated one-worker businesses. A seemingly small change in the provision of information and the search technology led to the industry structure changing from multiple-worker firms to a structure of single-worker firms.