Final answer:
True, the Internet does shrink information asymmetry by providing greater access to information for both buyers and sellers, leading to a more informed and potentially competitive marketplace.
Step-by-step explanation:
The statement that the Internet shrinks information asymmetry is true. Information asymmetry occurs when one party in a transaction has more or better information than the other, which can lead to an imbalance in negotiations, pricing, and overall market efficiency. The Internet has greatly increased access to information for both buyers and sellers, reducing this asymmetry.
In the marketplace, improved communication technologies have allowed consumers to research products, check reviews, and compare prices with unprecedented ease. Meanwhile, sellers can market their goods on a global scale and utilize data analytics to better understand consumer trends. This two-way flow of information results in a more informed and competitive environment.
The impact on firm size is debated. On one hand, it might lead to more small firms as they can reach a larger audience without needing a large physical presence. On the other, it may result in winner-take-all scenarios where large companies dominate certain markets. Regardless, the dynamics between the forces of smallness and largeness are greatly influenced by the reduction in information asymmetry due to the Internet.