Increasing Returns

The law of increasing returns is the concept of a product becoming more valuable the more it is sold. It is based on quantity rather than quality of the product. A good example that many economists like to use is the fax machine. The first fax machine created was not valuable because it could not communicate with anybody else but then a second was created and the first could communicate with it making the first fax machine valuable. The more fax machines sold, the more valuable they became because more people could communicate. This meant for a company or an organization to focus not necessarily on the quality of the product but rather generating quantities of the product. Another example of this would be BETA versus VHS; although BETA was the better product, not very many people owned it and did not inquire about it. VHS sold more, which allowed for VHS rental stores to open up and create more revenue for VHS. Now we have moved on to DVD’s and away from the VHS tapes. The DVD’s cost less to produce but they are more popular, convenient, and when companies make movies, tutorials, or any other item that needs to viewed they use DVD’s. The same is true for cassette tapes and cd’s. Some cars still have cassette tape players in them but no one really uses them anymore. When it comes to audio, the cd is what is more popular although they are cheaper. Cd’s can be produced much faster and cheaper, but they have generated more revenue for companies and spread worldwide. As you think about computers, in order to save your work created, the floppy disk was the product used and then it went to the cd, but now it has moved to the jump drive.