Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales

نویسندگان

  • Erik Brynjolfsson
  • Yu Hu
  • Duncan Simester
چکیده

Product variety is an important component of consumer welfare, yet many markets have historically been dominated by a small number of best-selling products. The Pareto Principle, also known as the 80/20 rule, describes this common pattern of sales concentration. However, by greatly lowering search costs, information technology in general and Internet markets in particular have the potential to substantially increase the collective share of niche products, thereby creating a longer tail in the distribution of sales. This paper first models how a reduction in search costs will affect the concentration in product sales. Then, by analyzing data collected from a multi-channel retailing company, it provides empirical evidence that the Internet channel exhibits a significantly less concentrated sales distribution, when compared with traditional channels. The difference in the sales distribution is highly significant, even after controlling for consumer differences. Furthermore, the effect is particularly strong for individuals with more prior experience using the Internet channel. We find evidence that Internet purchases made by consumers with prior experience are more skewed toward obscure products, compared with consumers who have no such experience. We observe the opposite outcome when comparing purchases by the same consumers through the catalog channel. If the relationships we uncover persist, the underlying trends in technology and search costs portend an ongoing shift in the distribution of product sales. Acknowledgements: We thank Chris Anderson, Jerry Hausman, Lorin Hitt, seminar participants at Purdue University, 2005 Workshop on Information Systems and Economics (WISE) for valuable comments on this paper. Generous funding was provided by the MIT Center for Digital Business and NSF Grant IIS-0085725. * MIT Sloan School of Management; email: [email protected]; web: http://digital.mit.edu/erik ** Krannert School of Management, Purdue University; email: [email protected] *** MIT Sloan School of Management; email: [email protected]

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منابع مشابه

Goodbye Pareto Principle , Hello Long Tail : The Effect of Search Costs on the Concentration of Product Sales This version : January 2011

Many markets have historically been dominated by a small number of best-selling products. The Pareto Principle, also known as the 80/20 rule, describes this common pattern of sales concentration. However, information technology in general and Internet markets in particular have the potential to substantially increase the collective share of niche products, thereby creating a longer tail in the ...

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عنوان ژورنال:
  • Management Science

دوره 57  شماره 

صفحات  -

تاریخ انتشار 2011