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

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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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
Contact details of provider: Web page: http://www.NETinst.org/

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  1. MacDonald, Glenn M, 1988. "The Economics of Rising Stars," American Economic Review, American Economic Association, vol. 78(1), pages 155-66, March.
  2. 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.
  3. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
  4. Chrysanthos Dellarocas, 2006. "Strategic Manipulation of Internet Opinion Forums: Implications for Consumers and Firms," Management Science, INFORMS, vol. 52(10), pages 1577-1593, October.
  5. Adler, Moshe, 1985. "Stardom and Talent," American Economic Review, American Economic Association, vol. 75(1), pages 208-12, March.
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