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The Rise of Niche Consumption

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  • Brent Neiman
  • Joseph Vavra

Abstract

Over the last 15 years, individual households have concentrated their spending on a few preferred products. However, this is not driven by "superstar" products capturing larger market shares. Instead, households increasingly purchase different products from each other. As a result, aggregate spending concentration has decreased. We develop a model of heterogeneous household demand and use it to conclude that increasing product variety drives these divergent trends. When more products are available, households select products better matched to their tastes. This delivers welfare gains from selection equal to about half a percent per year in the categories covered by our data.

Suggested Citation

  • Brent Neiman & Joseph Vavra, 2023. "The Rise of Niche Consumption," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 224-264, July.
    • Handle: RePEc:aea:aejmac:v:15:y:2023:i:3:p:224-64
    DOI: 10.1257/mac.20210263
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    1. Erik Brynjolfsson & Yu (Jeffrey) Hu & Michael D. Smith, 2003. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers," Management Science, INFORMS, vol. 49(11), pages 1580-1596, November.
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    4. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2016. "Appendix to "Distributional National Accounts: Methods and Estimates for the United States"," Working Papers 201604, World Inequality Lab.
    5. Jerry A. Hausman, 1996. "Valuation of New Goods under Perfect and Imperfect Competition," NBER Chapters, in: The Economics of New Goods, pages 207-248, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Cai, Xiaoming & Gautier, Pieter A. & Wolthoff, Ronald P., 2024. "Spatial Search," IZA Discussion Papers 16824, Institute of Labor Economics (IZA).
    2. Messner, Teresa & Rumler, Fabio & Strasser, Georg, 2022. "Cross-country price and inflation dispersion: Retail network or national border," Single Market Economics Papers WP2022/11, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.
    3. Salome Baslandze & Jeremy Greenwood & Ricardo Marto & Sara Moreira, 2023. "The Expansion of Varieties in the New Age of Advertising," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 50, pages 171-210, October.
    4. Chai, Andreas & Stepanova, Elena & Moneta, Alessio, 2023. "Quantifying expenditure hierarchies and the expansion of global consumption diversity," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 860-886.
    5. Sergey Kokovin & Alina Ozhegova & Shamil Sharapudinov & Alexander Tarasov & Philip Ushchev, 2024. "A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers," American Economic Journal: Microeconomics, American Economic Association, vol. 16(2), pages 354-384, May.
    6. Leonard I. Nakamura, 2020. "Evidence of Accelerating Mismeasurement of Growth and Inflation in the U.S. in the 21st Century," Working Papers 20-41, Federal Reserve Bank of Philadelphia.
    7. Charlson, G., 2021. "Third-Degree Price Discrimination in the Age of Big Data," Janeway Institute Working Papers 2104, Faculty of Economics, University of Cambridge.
    8. Gouel, Christophe & Jean, Sébastien, 2023. "Love of variety and gains from trade," European Economic Review, Elsevier, vol. 158(C).
    9. Chloe Lee & Wen Long & María J. Luengo‐Prado & Bent E. Sørensen, 2021. "Selective bargain hunting: A concise test of rational consumer search," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1089-1105, July.
    10. Yang, Chengyu & Wang, Xupeng, 2023. "Income and cultural consumption in China: A theoretical analysis and a regional empirical evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 102-123.
    11. Díez, Federico J. & Fan, Jiayue & Villegas-Sánchez, Carolina, 2021. "Global declining competition?," Journal of International Economics, Elsevier, vol. 132(C).
    12. Charlson, G., 2021. "Third-Degree Price Discrimination in the Age of Big Data," Cambridge Working Papers in Economics 2159, Faculty of Economics, University of Cambridge.
    13. Guy Aridor & Rafael Jiménez-Durán & Ro'ee Levy & Lena Song, 2024. "The Economics of Social Media," CESifo Working Paper Series 10934, CESifo.
    14. Volpe Martincus, Christian & Sztajerowska, Monika & Santi, Mariana Belén, 2024. "Consumers and Firms in International Trade," IDB Publications (Working Papers) 13558, Inter-American Development Bank.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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