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Economics of the Internet

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See attached file for full problem description.

The Long Tail, Chris Anderson, (2006), "Ch. 1: The Long Tail," pp. 15-26. "Ch. 3: A Short History of the Long Tail," pp. 41-51, "Ch. 4: The Three Forces of the Long Tail," pp. 52-57.

You can go to www.wardhanson.com/econ153 and see all the notes and resource.

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How the Internet can change markets and industries which have grown because of the long-tail effect.

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a) Chris Anderson argues that products which are in low demand or have low sales volume can make up a market share that equals or exceeds the relatively few current bestsellers and blockbusters, if the distribution channel is large enough. Thus on a graph of product sales versus varieties a "long tail" is seen to the right. Online retailers can generate profit in the long tail of the graph, while traditional ones cannot due to the cost of stocking an inventory, etc. According to Anderson, the forces which have caused this effect are: 1) Democratizing the tools of production (e.g. the PC) 2) Lowering the transaction costs of consumption (e.g. the Internet) 3) Connecting consumers to drive demand to niches (e.g. Google). Three industries that have experienced growth due to this phenomenon are software design, online computer parts retailers, and online education.

Online software designers benefit from the third ...

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