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Word of Mouth and Taste Matching: A Theory of the Long Tail

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Author Info
Andres Hervas-Drane () (Columbia University and Universitat Pompeu Fabra)
Abstract

I present a model to assess the impact of demand-side factors on the concentration of sales within large product assortments. Consumers face a search problem within an assortment of horizontally differentiated products supplied by a monopolist. They may search for a product match by drawing products from the assortment or by seeking word of mouth recommendations from other consumers. Product evaluations prior to purchase and word of mouth are shown to arise endogenously, and increase the concentration of sales. I show that taste matching mechanisms such as recommender systems, which allow consumers to obtain product recommendations from others with similar preferences, reduce sales concentration by generating a long tail effect, an increase in the tail of the sales distribution. Insights are derived on the mechanisms driving concentration in artistic markets and their strategic implications for the firm. The model is suited for experience good markets such as music, cinema, literature and video game entertainment.

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File URL: http://www.netinst.org/Hervas_07-41.pdf
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Publisher Info
Paper provided by NET Institute in its series Working Papers with number 07-41.

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Length: 36 pages
Date of creation: Oct 2007
Date of revision: Jan 2009
Handle: RePEc:net:wpaper:0741

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Web page: http://www.NETinst.org/

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Related research
Keywords: Search; Word of Mouth; Sales Concentration; Long Tail;

Find related papers by JEL classification:
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing

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