Arnold Kling

Growth vs. Buzz

Arnold Kling, Great Questions of Economics
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Two recent articles point to ways in which real economic progress is not necessarily chic. An article in McKinsey Quarterly (requires free registration) says,

retail-productivity growth, as measured by real value added per hour, jumped from 2 percent (1987-95) to 6.3 percent (1995-99), explaining nearly one-quarter of the economy-wide acceleration in productivity...

More than half of the productivity acceleration in the retailing of general merchandise can be explained by only two syllables: Wal-Mart. In 1987, Wal-Mart had a market share of just 9 percent but was 40 percent more productive than its competitors...By 1995, it commanded a market share of 27 percent and had widened its productivity edge to 48 percent.

Jakob Nielsen walks through a litany of examples of ways that companies try to compete on price or buzz when in fact there are opportunities to compete with better software.

If this user spends 20% of his or her time reading...on the computer screen, then the screen costs the company $20,000 per year...ClearType will make this user at least 10% more productive while reading from the screen, for a gain of $2,000...

Websites are so difficult to use that almost any company can differentiate itself through a relatively small investment in usability and programming.

...Today, a good support area on a vendor's website is worth more than an army of blue-suited service techs.

Discussion Question. When a consumer is ready to choose a product, the consumer may not have complete information to compare the usability of two different brands. How does this affect the producer's incentive to compete on price vs. usability?

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