Search, Design, and Market Structure
Heski Bar-Isaac, Guillermo Caruana, Vicente Cuñat
American Economic Review · 2012 · Volume 102 · Issue 2
Abstract
The Internet has made consumer search easier, with consequences for prices, industry structure, and the kinds of products offered. We provide an industry model with strategic design choices that explores these issues. A polarized market structure results: some firms choose designs aimed at broad-based audiences, while others target narrow niches. We analyze the effect of reduced search costs, finding results consistent with the reported prevalence of niche goods and long-tail and superstar phenomena. In particular, the model suggests that long-tail effects arise when there is a wide range of potential designs, relative to vertical heterogeneity among firms. (JEL D11, D21, D83, L11, L86, M31)
Keywords
Consumer Economics: Theory, Firm Behavior: Theory, Search, Learning, Information and Knowledge, Communication, Belief, Production, Pricing, and Market Structure, Size Distribution of Firms, Information and Internet Services, Computer Software, Marketing
Enable JavaScript for citation tools and additional paper interactions.