Group Assignment - II

Increasing Returns and the New World of Business

The law of diminishing returns is that products or companies that get ahead in a market
eventually run into limitations, so that a predictable equilibrium of prices and market
shares is reached. On the other hand, increasing returns are the tendency for that which is
ahead to get further ahead, for that which loses advantage to lose further advantage.

Alfred Marshall’s World of economics

Factors for the behaviour

• Bulk Production
• Commodities heavy on
resources
• Light on know-how

The Increasing-Returns World

But by the mid-1980s, a major

part of the economy was
subject to increasing
returns—high technology due
to various reasons
• Up-front Costs
• Network Effects
• Customer Groove-in
 Group Assignment - II
Increasing Returns and the New World of Business

Even service industries are a hybrid. From day to day, they act like bulk-processing
industries. But over the long term, increasing returns will dominate—even though their
destabilizing effects are not as pronounced as in high tech.

New way of thinking for managers

At the beginning of this century, industrial economies were based largely on the bulk
processing of resources. At the close of the century, they are based on the processing of
resources and on the processing of knowledge.
Managers need to ask themselves when they operate in knowledge-based markets:

• Do I understand the feedbacks in my market?

• Which ecologies am I in?
• Do I have the resources to play?
• What games are coming next?

“The central event of the twentieth century is the overthrow of matter. In technology,
economics, and the politics of nations, wealth in the form of physical resources is steadily
declining in value and significance. The powers of mind are everywhere ascendant over
the brute force of things.”

It is believed that success will strongly favour those who understand this new way of
thinking. Let’s ponder on the ways of new economic behaviour of the world.

Submitted by:
Group 3
Akhil | Deepanshu | Nivethitha | Prateek | Ritesh | Viresh