Economic models and how they change

Increasing Returns and the New World of Business is an article about the ways in which economic models have changed over the past several decades to account for the drastic changes in the way that we develop technology. It talks about two distinct models, one of increasing returns and one of decreasing returns.

The model focused on decreasing returns is older and is applicable to industries of mass production. It states that as businesses attempt to take more and more of a given market, they will see diminishing returns on their investments as either the market becomes overfull with their products or they run out of resources to create the product. This would ensure balance between competing companies and stability in the market. In today’s information business, however, the game has changed. As companies invest more into their product, they can expect to see more returns. Products that are more established for a generation of products will steal resources in the form of developers from their competitors and will become increasingly dominant over the market.

 

Arthur, W. B. (1996). Increasing Returns and the New World of Business.Harvard Business Review. Retrieved fromhttp://tuvalu.santafe.edu/~wbarthur/Papers/HBR.pdf

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