Economics in Tech Companies

Have you heard that companies like Google, Facebook, Microsoft Airbnb, and Uber have all hired many Ph.D. economists? Economists have worked for decades on the design of markets and incentives, and today this work thanks to the internet, has got new applications in the digital economy! Let’s see the five main areas where economists can support tech companies!

5 Problems Economists Can Help Tech Companies Solve

What are the goals around user growth, profitability, fairness, and how is the design of your platform affecting them? 

Market design economists can help you decide if your platform involves matching users or businesses. Companies like Airbnb, Tinder, TripAdvisor all use matching. The main question is whether to allow other firms to sell products or services to their consumers alongside their own. Plus, if they want to do so, then whether to do so only for complementary products or to go so far as opening up to other products. 

Are scale economies important for your company, your suppliers, or your customers?  

Opportunities for acquisitions and exclusive deals by your company or your competitors are likely to occur. This may alter the strategic environment. Economic principles may help you understand which industry structures are sustainable. On the other hand, it will help you understand how particular deals would affect the profitability of your business. 

Economic modeling may help determine whether a market can sustain multiple competitors. For example, Android and iPhone – both of them have good modeling or are likely to end in a single dominant firm. In smaller countries, Google is the most dominant search engine, with more than 90% market share in search!

Trust the economist to make economic modeling and support you.

How is your company affecting the world?

The value you are creating and effectively communicating to stakeholders has much value. Are there any negative consequences that you can better anticipate and minimise? Are there any regulatory changes you’ll need to comply with in the long term? Furthermore, are you vulnerable to the introduction of new legislation that may impede your business? 

Economists can guide you in this area.

Can economics improve your management practices and decision making?

The good news is that economists study incentives, so tech companies have many great incentive design problems, ranging from setting a wage structure for a sales team to determining which markets to enter, so definitely yes!

For example, in the context of email marketing, if you optimise for short-term outcomes such as whether a consumer opens a marketing email – this might lead a company to send emails that have notable subject lines but may not lead to purchases. The set of outcome metrics used to evaluate A/B tests can have a large impact on what innovations engineers choose to pursue. 

So in the end, it is very wise if you trust your economist to make those management practices, it will help you with decision making. 

How are you thinking about your data assets? 

Every economist knows that data is a critical strategic asset for technology firms. There are plenty of economic decisions involved. Coming from decisions about retaining and acquiring data, to products and partnerships that generate or create access to different types of data. As well as whether a firm should try to sell data in some form as an additional business line. 

In summary, economic models can be used to value data. 

Economists may contribute to the problem of how data can be used to shed light on the world! This means tech data can inform policy and complement standard government data. Tech data may be used to develop valuable analytics packages or result in new products. Online platforms are the microcosm for society, offering a testing ground for broad societal questions. These are very crucial things for every business today, so consider it carefully.

Machine learning or traditional data scientists vs economists

Machine learning or traditional data scientists very often do not have a lot of experience in using observational data or designing experiments to answer business questions. 

Questions such as – ‘did an advertising campaign work?’ ‘Should we change the auction design?’ is where machine learning is best at prediction, but not so much at analysing “counterfactuals”, or what-if questions. 

Economists are the best choice to help out your business in the areas where traditional data scientists fail. They are trained to think about equilibrium and feedback effects, so you can trust them!


Interestingly, many big tech companies hired many Ph.D. economists. These firms realised that adding one economist to a team will bring a valuable alternative perspective. It is not a big surprise that all the top tech firms are hiring them!

Whether you want more productivity or improving management practices, they can contribute to the company with much needed knowledge and experience.


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