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Search, design, and market structure

Bar-Isaac, Heski, Caruana, Guillermo and Cuñat, Vicente (2012) Search, design, and market structure. American Economic Review, 102 (2). pp. 1140-1160. ISSN 0002-8282

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Abstract

The Internet has made consumer search easier, with consequences for prices, industry structure and the kinds of products offered. We explore these conse- quences in a rich but tractable model that allows for strategic design choices. A polarized market structure results, where some firms choose designs aimed at broad-based audiences, while others target narrow niches. Such an industry structure can arise even when all firms and consumers are ex-ante identical. We analyze the e¤ect of reduced search costs and find results consistent with the reported prevalence of niche goods and the long-tail and superstar phe- nomena. In particular, the model suggests that long-tail e¤ects arise when there is a wide range of potential designs, relative to vertical heterogeneity among firms.

Item Type: Article
Official URL: http://www.aeaweb.org/aer/index.php
Additional Information: © 2012 American Economic Association
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L - Industrial Organization > L8 - Industry Studies: Services > L86 - Information and Internet Services; Computer Software
M - Business Administration and Business Economics; Marketing; Accounting > M3 - Marketing and Advertising > M31 - Marketing
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Finance
Departments > Management
Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 10 Nov 2011 14:23
URL: http://eprints.lse.ac.uk/39414/

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