Nanoeconomics

I've been asked to do a Long Tail "high-order bit" presentation (a concept first seen at the Web 2.0 conference) at O'Reilly's Emerging Technology conference in San Diego in March. Chatting with one of the organizers today, I was given the choice to go deep or go broad. Rashly, I chose deep, offering this:

The Economics of the Long Tail: Forget macroeconomics. While you're at it, forget microeconomics, too. The really interesting new work is in nanoeconomics, or economic behavior in markets of a million niches far down the long tail of demand. From Pareto distributions to the rise of secondary markets, the ability to find big businesses in small sums is casting a new light on the dismal science.

Now a confession.  At the time I thought nanoeconomics was my own neologism (much like "The Long Tail" itself), which I would have a few months to develop before presenting. That shouldn't have been a problem. There are, as it happens, a lot of really interesting, even surprising, economic effects that crop up in markets with a large number of low-volume transactions. And the economics of abundance are always fascinating. I won't say that visions of Oslo were dancing in my head, but it is a rich seam.

But I was naive. Of course someone had coined the term before me. Indeed, the problem is that there are at least four radically different definitions for nanoeconomics. There is, naturally enough, the economics of nanotechnology. Also, the economics of auctions and other micro-markets where the rules are important to determining the outcome. The economics of massively multiplayer games and virtual worlds. And, quite randomly, the microeconomics of children.

Still, Google only shows 223 hits for the word, so I figure there's still hope for me to reclaim it.  I'll start with these topics:

--The economics of hits vs. niches.

--The economics of abundance.

--Zipf vs. Pareto vs. Powerlaw: why shape matters.

--The importance of transaction costs (Coase redux).

--The connection between long tails and secondary markets, from used goods to overstock items.

Proper economists (or even improper economists) are invited to offer thoughts on any and all of the above while I reteach myself statistics. As if.

Comments

[Morten Bay]

Hi Chris,

No matter what - the attention you are giving the nanoeconomy of The Long Tail is shaking up things a lot right now.

Here are some points that come to my mind when reading about the long tail...

- Where is the dividing line between the long tail and the short tail? Is there an upper price limit to long tail products?

- Is advertizing for long tail products possible, or would that kill the attractive, low-cost of "stocking" the long tail product?

- Will this sort of advertizing become essential in the future, or will it simply not be necessary?

- The long tail's obvious core product is entertainment products that can be digitized, because storage costs are low. But what if outsourcing storage to places like India could lower storage costs for physical products too? There is still the transport issue, but the way the budget airline market is exploding right now, a new market of budget shipping might emerge, especially if the long tail creates enough interest...or what? Could e.g. exotic food or modern furniture be sold in the long tail?

[praktike]

Aren't you really just talking about perfect price discrimination, which is a microeconomics concept?

The only thing new is that it's now less theoretical.

[Morten Bay]

Probably...I'm an "improper economist" - I just wanted to share my immediate thoughts...

But even though it's theoretically a micro-economy concept won't the marketing part of it be applicable to nanoeconomy anyway?
Just trying to learn something here...

[Bill A]

Nanoeconomy is probably going to be a hotly contested term. Better off picking something less fought over. The Picaeconomy? Pica being a unit of measurement in publishing...

[rob]

I have an anecdotal point:

Nanoeconomics, however you define it, will certainly shake up markets, it already has. The shakeup may depend on the company, however.

My parents enjoy square dancing. They enter competitions and such and have to wear costumes. These costumes, especially for the women, aren't something you go get at Target. They're elaborate and expensive. In the city where they live, ONE woman makes the stuff and sells it for huge bucks. Then a rumor swept through the square dancing club: you could get the stuff MUCH cheaper on eBay, both new and used. Boom! the local woman was out of business (or at least has to sell much more cheaply).

[Oli]

Nannoeconomics, on the other hand, is the economics of dwarfs. It's largely concerned with the pros and cons of pegging your economy to mithril.

[John Henry]

There are a lot of issues to be resolved with producing, marketing and delivering small volumes of products. I think you have identified some of the interesting ones.

One area often overlooked is the cost of changeover. Changeover being the process of converting a manufacturing line or machine from product A to product B.

A bottling plant going from 16oz to 20oz bottles may need to stop the line for as long as 8 hours at, as I am sure you can imagine, an enormous cost.

Publishing is another area where this occurs but can be addressed with digital printing on demand. That is, pretty much no setup or changeover costs to go from book A to book B. (Assuming both are already digitized)

I do a lot of work in this area and an article I wrote for Advanced Manufacturing magazine may be of interest. It's titled "Flexible products demand quick changes"

It's available at
http://www.advancedmanufacturing.com/November01/changeover.htm

If I can be of any help, just holler.

there's a lot of other info and articles at my site, www.changeover.com

John Henry
john (at) changeover.com

[Oren]

The Long Tail may be a great place to do business, but I don't think it's a good place to get rich. In the music business, for example, I don't believe that there are many big record deals or highly paid executives out on the Tail. Instead, there are small record companies and many musicians making a decent living if they're lucky.
Because there's less money at stake, you can be more relaxed about the content. Just compare emusic.com with, say, Napster or iTunes. emusic is pure "Long Tail," and sells unencrypted MP3 files.

This is why the Long Tail may frighten, for example, executives at the major labels. They're not scared of going out of business, but of the possibility that they may have to go back to earning normal salaries.

[mohamad]

plese send to me some article mathematicseconomics

[christmas gift ideas]

This is how learning curves are useful. It's not uncommon for manufacturers to price vehicles above their marginal cost as the cost will decrease over time. At least, it wasn't uncommon in the early 90s according to my profs. If it costs 5 lakh, then you're right but if Tata is only losing a bit on the first ones then the economist in you should understand.

[read more]

Nanoeconomics works in the online world because the Internet is almost a perfect platform.

The target audience is easily captured by technologies such as search. As the web evolves, so will the study of nanoeconomics.