THE IMPACT OF NATIONAL DATA NETWORKS ON FIRM PERFORMANCE AND MARKET STRUCTURE

Abstract

An open data network is one that allows firms to exchange information with outside entities, and a national data network is one that provides virtually universal access, interconnecting most businesses and private citizens in a country. Establishing a national data network is very costly and must be justified by its economic, service, and societal impact. France with its Teletel system is close to having a national data network, whereas the United States is not. Using data from 619 businesses in France and the United States we examine several claims: 1) open networks have improve firms' productivity, efficiency, and quality of service; 2) national open networks allow relationships among firms to be based on an electronic marketplace; and 3) national open networks differentially benefit small and medium sized firms. The results show that firms using open networks are more efficient and profitable and have more stable relationships with their customers. The natural advantage that large firms have to exploit new technology has been moderated in France, since small and medium-sized firms who used the national network have gained the same advantages as large firms. However, even in France, the use of open networks by the general population of firms is still relatively low, thus arguing for a long diffusion constant for the beneficial effects of open networks.