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Search, Design, and Market Structure

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Author Info

  • Heski Bar-Isaac
  • Guillermo Caruana
  • Vicente Cunat

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)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.2.1140
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 2 (April)
Pages: 1140-60

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:2:p:1140-60

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References

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  1. Dmitri Kuksov, 2004. "Buyer Search Costs and Endogenous Product Design," Marketing Science, INFORMS, vol. 23(4), pages 490-499, May.
  2. Heski Bar-Isaac & Guillermo Caruana & Vicente Cuñat, 2010. "Information Gathering and Marketing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 375-401, 06.
  3. Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581.
  4. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  5. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
  6. Simon P. Anderson & Regis Renault, 1999. "Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model," Virginia Economics Online Papers 335, University of Virginia, Department of Economics.
  7. Wolinsky, Asher, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 493-511, August.
  8. Catherine Tucker & Juanjuan Zhang, 2011. "How Does Popularity Information Affect Choices? A Field Experiment," Management Science, INFORMS, vol. 57(5), pages 828-842, May.
  9. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
  10. Nathan Larson, 2013. "Niche products, generic products, and consumer search," Economic Theory, Springer, vol. 52(2), pages 793-832, March.
  11. Gérard P. Cachon & Christian Terwiesch & Yi Xu, 2008. "On the Effects of Consumer Search and Firm Entry in a Multiproduct Competitive Market," Marketing Science, INFORMS, vol. 27(3), pages 461-473, 05-06.
  12. Tucker, Catherine & Zhang, Juanjuan, 2007. "Long Tail or Steep Tail? A Field Investigation into How Online Popularity Information Affects the Distribution of Customer Choices," Working papers 39811, Massachusetts Institute of Technology (MIT), Sloan School of Management.
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Citations

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Cited by:
  1. Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.
  2. Fershtman, Chaim & Fishman, Arthur & Zhou, Jidong, 2013. "Search and Categorization," MPRA Paper 53166, University Library of Munich, Germany.
  3. Renault, Régis, 2014. "Platform contents," Economics Papers from University Paris Dauphine 123456789/12808, Paris Dauphine University.
  4. Chen, Yongmin & Zhang, Tianle, 2013. "Entry and Welfare in Search Markets," MPRA Paper 52241, University Library of Munich, Germany.
  5. Arthur Fishman & Nadav Levy, 2011. "Search Costs and Risky Investment in Quality," Working Papers 2011-04, Department of Economics, Bar-Ilan University.

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