TIPPING POINT

In the past, businesses and industries had operated in what is now known today as the “Traditional Economy”, which according to Faulkner (2008) consisted of the manufacturing and commodities based industries. Its industrial system was controlled largely by the Market Mechanism which regulated demand and supply, where the prices of goods and services were determined at the equilibrium point at which these two factors met. It also proposed the consideration of “Economies of Scale” where “reductions in unit cost as the size of a facility and the usage levels of other inputs increase is realized.” (Sheffrin, 2003). Nevertheless, because of Diseconomies of Scale, the situation existed “where economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased” (Angus, 1999). In this way, the growth of the business is stymied unless new plant and machinery is purchased, resulting in additional cost. In this way, firms are prevented from becoming infinitely large. Also, in the traditional economy, Market power was derived largely through the medium of barriers to entry which prevented would-be competitors from entering the market, including barriers from technology, barriers of brand name and reputation and legal barriers (Saloner, 2001).

However, the Traditional Economy had been seen as being outdated and increasingly inapplicable in modern times. This was driven mainly because of the revolution of technology, where “value was no longer being measured according to the old standard, created to suit manufacturing industries; but rather, focused on the impact of new technology and how quickly these technologies were changing” (Alperovitz, 2011). This, essentially, is what the New Economy consists of.
The New Economy has several key