Search, Design, and Market Structure
- (pp. 1140-60)
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)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.102.2.1140Additional Materials
JEL Classification
- 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