American Economic Review Vol. 102 No. 2 2012

Search, Design, and Market Structure

Heski Bar-Isaac¹; Guillermo Caruana²; Vicente Cuñat³

¹ Department of Economics, Stern School of Business, New York University, 44 West Fourth Street 7-73, New York, NY 10012. · ² Casado del Alisal 5, 28014 Madrid, Spain · ³ Room A450, Department of Finance, London School of Economics, Houghton Street, London WC2A 2AE, UK.

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

DOI

10.1257/aer.102.2.1140

Volume

102

Issue

2

Pages

1140-1160

Language

en

Sources

crossref openalex bibtex:phds-export.bib

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓