The modern economy

The Challenges of Measuring Progress in the New Economy

The new economy has expanded dramatically in comparison to the old regime, posing a number of difficulties in measuring its progress. Currently, internet businesses like Facebook and Google rely on online applications from their customers, whose demands cannot be easily determined. Since their implementations are unpredictable, collecting data to measure their consumer surplus is a difficult task to analyze. Any of the main issues are discussed below (Peres, Muller & Mahajan, 2010).

Determining Consumer Demand

It is worth noting that in order to easily compute market surplus, the need for the goods must be determined ahead of time. However, most of the online companies like Facebook and Google provide online platforms where advertisers access to advertise their products by paying to such enterprises (Brynjolfsson, Hu, & Simester, 2011). This does not show the relationship between the consumer and the company regarding demand by the consumers. Thus, the consumer demand cannot be known which consequently puts a challenge on finding the true data of the number of consumers for the product since they only access the platform free of charge.

The Limitations of Price

Price is another factor that used to calculate the surplus of the consumer commodity. However, this does not provide adequate results (Verhoef & Lemon, 2013). The use of price is to determine the quantity that the consumer is willing to pay for a certain commodity. It is not possible to apply the same principle to the online companies that major in providing platforms for advertisements, as the consumers are not shown to pay any price for the commodity advertised. Online companies thus depend mostly on the advertisers to fetch their revenues. This is because the online demand for the services is a highly elastic thus slight change in the service leads to a change in the demand for the service.

Reference

Brynjolfsson, E., Hu, Y., & Simester, D. (2011). Goodbye pareto principle, hello long tail: The effect of search costs on the concentration of product sales. Management Science, 57(8), 1373-1386.

Peres, R., Muller, E., & Mahajan, V. (2010). Innovation diffusion and new product growth models: A critical review and research directions. International Journal of Research in Marketing, 27(2), 91-106.

Verhoef, P. C., & Lemon, K. N. (2013). Successful customer value management: Key lessons and emerging trends. European Management Journal, 31(1), 1-15.