Superstars and the long tail: The impact of technology on market structure in media industries

Technological change is transforming media industries. Digitization lowers the cost of recording, storage, reproduction and distribution, while computer-based editing facilitates higher quality and special e¤ects. With electronic distribution, a vast range of content can be made available to consumers at little cost. Meanwhile, the distribution of industry production and sales appears to be shifting: the late 20th century was the era of the “hit parade”, but in the 21st attention has shifted to the “long tail”. This paper develops a free entry model of di¤erentiated products with endogenous quality and heterogeneous types to examine the implications of technological change for market The author would like to thank Simon Anderson, Mark Armstrong, Peter Davis, Paul Seabright, Andrew Sweeting, and seminar participants at Essex, Surrey, the Network of Industrial Economists Annual Meeting, the LECG Paris workshop on digital media, and the 6th International Workshop on Media Economics for helpful comments and discussion. Any errors remain the responsibility of the author. Financial support from the LECG/Microsoft grant programme is gratefully acknowledged. yMailing address: Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, UK. Tel: +44 (0)1206 872727. Fax: +44 (0)1206 872724. Email: [email protected].