A Companion to New Media Dynamics

Chapter 5

The Economics of New Media

John Quiggin

The rise of new media associated with the Internet has radically changed many aspects of daily life, and enabled us to do things that would have seemed unimaginable even a few decades ago. The speed and volume of communications have increased by a factor of a million or more since the Internet first emerged in the 1990s, and there has been a corresponding proliferation of information.

Yet the economic implications of new media are hard to discern. The famous observation of Robert Solow (1987) that “you can see the computer age everywhere but in the productivity statistics” is just as valid today as it was when he first made it more than 20 years ago.

The age of new media has produced only a handful of profitable new companies (Amazon and Google are the most notable examples). At the same time, while old media (newspapers, TV, radio) have proved more resilient than many observers expected, their business models have been severely undermined.

This chapter will discuss what economics can tell us about new media. More interestingly, perhaps, at least to those concerned with the long-term impact of new media, it will examine the implications of new media for economics and economic organization, and offer some policy recommendations.

What Can Economics Tell Us about New Media?

All media convey information. However, it is worth considering McLuhan's 1964 gnomic observation that “the medium is the message.” For old media, and particularly ...