Rey Hernández-Julián and Frank Limehouse writing in the Journal of Economics Teaching note that very few rules of economics literature apply to modern information and digital technology industries:
Key takeaways from our review are highlighted by two stand-alone text boxes found in Mankiw’s (2023) book. This book is considered one of the leading players in the terms of the economic book market for more than 20 years. In the introductory chapter of the 10th Edition (2023), “Ten Principles of Economics” there is a single text box with the Netflix logo and the following caption: “Most movie streaming services set the marginal cost of a movie equal to zero” . However, there is no further explanation of this statement in the chapter and no presentation of the concept of zero marginal cost in the remainder of the textbook. In Chapter 2 (“Thinking Like an Economist”), there is a News article from the New York Times, “Why Tech Companies Hire Economists”, but very little is said in the text about how to apply microeconomic concepts to the tech industry. . These two discussions of the technology industry in Mankiw’s text are examples of many we have found in other texts….the updated examples from the modern economy seem to be afterthoughts and removed from the central discussion of the text.
…There is one notable exception. The most important coverage of these questions is in Chapter 16 of Cowen and Tabarrok’s Modern Principles of Microeconomics, 5th edition (2021). In this chapter, the authors discuss platform service providers, such as Facebook, Amazon, Google, Visa, and Uber, and the role they play in competing in the “market,” rather than the “market.” They also discuss why the current product is not the best, how music is a great network, and why these platform services can offer goods for ‘free’.
I would also point out that our example of a constant cost industry (a flat long-run supply curve) is domain name registration! As we write in Modern Principles:
Now imagine what happens when the demand for domain names increases. In 2005, there were more than 60 million domain names. Just one year later, as the Internet exploded in popularity, there were more than 100 million domain names. If the demand for oil almost doubles, the price of oil can go up a lot, but despite almost doubling in size, the price of registering a domain name has not increased…the expansion of old firms and the entry of new firms quickly brought the price back up. low to moderate costs.
In short, it’s called Modern Principles for a reason! Tyler and I are committed to keeping up with the times and not just adding the occasional box and relaxing.
See Hernández-Julián and Limehouse for other examples of how to introduce modern industries into economic terms.
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