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January 30, 2024

Increasing Returns: Identifying Forms of Increasing Returns and What Drives Them

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January 30, 2024

Increasing Returns: Identifying Forms of Increasing Returns and What Drives Them


Consilient Observer

Increasing Returns: Identifying Forms of Increasing Returns and What Drives Them

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January 30, 2024

 
 
  • We review five areas of micro- and macroeconomics where the concept of increasing returns applies and attempt to show why they are relevant to investors today.
  • Increasing returns describes cases when a marginal investment generates an output above the average and shows up as rising returns on invested capital and high market share.
  • The forms of increasing returns tend to overlap and are useful to understand in the context of industry formation, market structure, international trade, and economic growth.
  • Most forms of increasing returns are deeply intertwined with the rise of intangible assets, which can scale faster than tangible ones but are also harder to protect.
 
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