Arnold Kling

The Internet and Productivity

Arnold Kling, Great Questions of Economics
Previous Entry Next Entry

Reporting on a study that he did with Robert Litan, Hal Varian writes,

Using the Internet to attract new customers is great for profitability, but that's not the same as improving the productivity of an entire industry. Since new customers tend to come from within the same industry, such gains tend to have relatively low impact on aggregate productivity.

They seem to be saying that using the Internet for marketing instead of cost-saving is bad for productivity. I tend to disagree. Marketing is an activity that uses resources. If the Internet allows you to reduce the resources used to obtain customers, then it raises productivity just as surely as if it were to lower supply-chain costs. And if it does not allow you to reduce the resources used to obtain customers, then it would not increase profitability.

Discussion Question. Is it useful to distinguish investments used to obtain customers from investments used to reduced costs?

Return to top