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From Boom to Bust and Back Again: A dynamic analysis of IT services

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  • Maican, Florin G.

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

Aggregate shocks in demand such as the burst of the 2001 dot-com bubble affect firms’ behavior and, therefore, the market structure. This paper proposes a fully dynamic oligopoly model to evaluate the impact of aggregate demand shocks on entry and exit costs as well as on investment and labor adjustment costs in IT services. The empirical application builds on an eight year panel dataset that includes every IT service firm in Sweden. The paper finds higher fixed investment and labor adjustment costs for software but lower for operational services after the dot-com bust. The entry costs for software were six times lower than for operational services, which might explain the large number of entrants in software. Entrants are found less productive than incumbents and net exit contributed the most to productivity growth in the IT services after the dot-com bust. For policy makers, the changes in cost structure give key information about industry dynamics and its impact on high-skilled jobs.

Suggested Citation

  • Maican, Florin G., 2012. "From Boom to Bust and Back Again: A dynamic analysis of IT services," Working Papers in Economics 543, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0543
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    File URL: http://hdl.handle.net/2077/30455
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    More about this item

    Keywords

    IT services; Imperfect Competition; Dynamic Estimation; Industry Dynamics; Strategic Interactions;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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