IDEAS home Printed from
   My bibliography  Save this article

Search, Design, and Market Structure


  • Heski Bar-Isaac
  • Guillermo Caruana
  • Vicente Cunat


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)

Suggested Citation

  • Heski Bar-Isaac & Guillermo Caruana & Vicente Cunat, 2012. "Search, Design, and Market Structure," American Economic Review, American Economic Association, vol. 102(2), pages 1140-1160, April.
  • Handle: RePEc:aea:aecrev:v:102:y:2012:i:2:p:1140-60

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    1. repec:dau:papers:123456789/12478 is not listed on IDEAS
    2. Simon P. Anderson & Regis Renault, 1999. "Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 719-735, Winter.
    3. Dmitri Kuksov, 2004. "Buyer Search Costs and Endogenous Product Design," Marketing Science, INFORMS, vol. 23(4), pages 490-499, May.
    4. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 445-469, August.
    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 309-327, May.
    6. 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.
    7. Nathan Larson, 2013. "Niche products, generic products, and consumer search," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 793-832, March.
    8. 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, June.
    9. 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.
    10. Simon P. Anderson & Régis Renault, 2009. "Comparative advertising: disclosing horizontal match information," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 558-581.
    11. Heski Bar-Isaac & Guillermo Caruana & Vicente Cunat, 2007. "Information Gathering Externalities in Product Markets," Working Papers 07-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    12. Asher Wolinsky, 1986. "True Monopolistic Competition as a Result of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 493-511.
    13. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
    14. Catherine Tucker & Juanjuan Zhang, 2011. "How Does Popularity Information Affect Choices? A Field Experiment," Management Science, INFORMS, vol. 57(5), pages 828-842, May.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Yongmin Chen & Michael H. Riordan, 2015. "Prices, Profits, and Preference Dependence," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 549-568, December.
    2. José Luis Moraga-González & Zsolt Sándor & Matthijs R. Wildenbeest, 2015. "Consumer Search and Prices in the Automobile Market," Tinbergen Institute Discussion Papers 15-033/VII, Tinbergen Institute.
    3. Yinbo Feng & Ming Hu, 2017. "Blockbuster or Niche? Competitive Strategy under Network Effects," Working Papers 17-13, NET Institute.
    4. Armstrong, Mark, 2016. "Ordered Consumer Search," MPRA Paper 72194, University Library of Munich, Germany.
    5. Simona Grassi & Ching-To Albert Ma, 2015. "Information Acquisition, Referral, and Organization," Boston University - Department of Economics - Working Papers Series wp2015-007, Boston University - Department of Economics.
    6. Huo, Jingjing, 2015. "How Nations Innovate: The Political Economy of Technological Innovation in Affluent Capitalist Economies," OUP Catalogue, Oxford University Press, number 9780198735847, June.
    7. Moraga-González, José L. & Sándor, Zsolt & Wildenbeest, Matthijs R., 2014. "Prices, Product Differentiation, And Heterogeneous Search Costs," IESE Research Papers D/1097, IESE Business School.
    8. 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.
    9. Hong, Sounman, 2012. "Online news on Twitter: Newspapers’ social media adoption and their online readership," Information Economics and Policy, Elsevier, vol. 24(1), pages 69-74.
    10. Florian Morath & Johannes Muenster, 2014. "Online Shopping and Platform Design with Ex Ante Registration Requirements," Working Papers tax-mpg-rps-2014-21, Max Planck Institute for Tax Law and Public Finance.
    11. repec:dau:papers:123456789/12808 is not listed on IDEAS
    12. Arthur Fishman & Nadav Levy, 2011. "Search Costs and Risky Investment in Quality," Working Papers 2011-04, Bar-Ilan University, Department of Economics.
    13. Maria Carmela Ceparano & Jacqueline Morgan, 2015. "Equilibria Under Passive Beliefs for Multi-leader-follower Games with Vertical Information: Existence Results," CSEF Working Papers 417, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Jan 2017.
    14. Wilson, Chris M., 2016. "Information Matters: A Theoretical Comparison of Some Cross-Border Trade Barriers," EconStor Preprints 130180, ZBW - German National Library of Economics.
    15. Wang, Chengsi, 2011. "Informative Advertising, Consumer Search and Transparency Policy," MPRA Paper 34977, University Library of Munich, Germany.
    16. Chen, Yongmin & Zhang, Tianle, 2016. "Intermediaries and Consumer Search," MPRA Paper 76051, University Library of Munich, Germany.
    17. Andre Veiga, 2014. "Dynamic Platform Design," Working Papers 14-15, NET Institute.
    18. Moraga-González, José-Luis & Sándor, Zsolt & Wildenbeest, Matthijs, 2015. "Prices and Heterogeneous Search Costs," CEPR Discussion Papers 10657, C.E.P.R. Discussion Papers.
    19. Chen, Yongmin & Zhang, Tianle, 2013. "Entry and Welfare in Search Markets," MPRA Paper 52241, University Library of Munich, Germany.
    20. Chengsi Wang & Julian Wright, 2016. "Platform investment and price parity clauses," Working Papers 16-17, NET Institute.
    21. Wilson, Chris M., 2016. "Information matters: A theoretical comparison of some cross-border trade barriers," Information Economics and Policy, Elsevier, vol. 37(C), pages 52-60.
    22. repec:kap:jeczfn:v:121:y:2017:i:2:d:10.1007_s00712-016-0518-0 is not listed on IDEAS
    23. Fershtman, Chaim & Fishman, Arthur & Zhou, Jidong, 2013. "Search and Categorization," MPRA Paper 53166, University Library of Munich, Germany.
    24. Chris M Wilson, 2015. "Information Matters: Comparing Some Theoretical Determinants of Border Effects in Trade," Discussion Paper Series 2015_02, Department of Economics, Loughborough University, revised Feb 2015.
    25. Mariana Cunha & António Osório & Ricardo Ribeiro, 2016. "Endogenous product design and quality with rationally inattentive consumers," Working Papers de Economia (Economics Working Papers) 03, Católica Porto Business School, Universidade Católica Portuguesa.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:102:y:2012:i:2:p:1140-60. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.