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The Economics of the Long Tail

Author

Listed:
  • Kendall Todd D.

    (Compass Lexecon)

  • Tsui Kevin

    (Clemson University)

Abstract

Anderson (2006) argues that e-commerce and other new technologies improve efficiency by encouraging the entry of new producers and innovations, creating a “long tail” of niche products while reducing the market share of previously popular products. We study the strategic interaction between hits and niches in their pricing, entry, and innovation decisions using a model of competition under product differentiation and generalized cost structure. In contrast to the popular view, we show that improvements in information and communication technology can lead to either the long tail effect or an opposite “superstar” effect (Rosen, 1981), depending on (a) how the structure (not simply the level) of producer costs changes, and (b) how disparate are consumer preferences. These two factors also determine whether there is excessive or insufficient product diversity. Post-entry product and technology innovation incentives may be inefficient in the long tail market structure because producers can soften price competition by engaging in excessive product differentiation and adopting technologies with high variable costs. These results have implications for various competition-related policies.

Suggested Citation

  • Kendall Todd D. & Tsui Kevin, 2011. "The Economics of the Long Tail," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-20, December.
    • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:76
    DOI: 10.2202/1935-1682.2845
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    References listed on IDEAS

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    5. W. Crain & Robert Tollison, 2002. "Consumer Choice and the Popular Music Industry: A Test of the Superstar Theory," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 29(1), pages 1-9, March.
    6. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001, January.
    7. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
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    Cited by:

    1. Tsui Kevin K., 2016. "Economic Explanation: From Sharecropping to the Sharing Economy," Man and the Economy, De Gruyter, vol. 3(1), pages 77-96, June.
    2. Matt Wimble & John Tripp & Brandis Phillips & Nash Milic, 2016. "On search cost and the long tail: the moderating role of search cost," Information Systems and e-Business Management, Springer, vol. 14(3), pages 507-531, August.
    3. Mulligan, Casey B. & Tsui, Kevin K., 2015. "Political entry, public policies, and the economy," Research in Economics, Elsevier, vol. 69(3), pages 377-397.
    4. Lily Kiminami & Shinichi Furuzawa & Akira Kiminami, 2021. "Rice policies for long-tail market-creating innovations: empirical study on consumers’ cognition and behavior in Japan," Asia-Pacific Journal of Regional Science, Springer, vol. 5(3), pages 909-931, October.

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