American Economic Review: Vol. 102 No. 2 (April 2012)


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Search, Design, and Market Structure

Article Citation

Bar-Isaac, Heski, Guillermo Caruana, and Vicente Cuñat. 2012. "Search, Design, and Market Structure." American Economic Review, 102(2): 1140-60.

DOI: 10.1257/aer.102.2.1140


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)

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Bar-Isaac, Heski (NYU)
Caruana, Guillermo (Madrid, Spain)
Cuñat, Vicente (London School of Economics)

JEL Classifications

D11: Consumer Economics: Theory
D21: Firm Behavior: Theory
D83: Search; Learning; Information and Knowledge; Communication; Belief
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L86: Information and Internet Services; Computer Software
M31: Marketing

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