The Nature of Markets in the World Wide Web

Bernardo A. Huberman () and Lada A. Adamic ()
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Bernardo A. Huberman: Xerox PARC
Lada A. Adamic: Xerox PARC

No 521, Computing in Economics and Finance 1999 from Society for Computational Economics

Abstract: Much has been said about the possibility that in the information age, ease of entry and global access will lead to market characteristics with few inefficiencies. While several arguments have been articulated on the nature of markets and electronic commerce, little is known about their characteristics and performance. We have studied the statistics in the number of visitors to sites of the World Wide Web by examining AOL usage logs covering 120,000 sites. We found out that, among all sites as well as for specific categories, the distribution of visitors per site follows a universal power law similar to that found by Pareto for income distributions. This implies that a small number of sites commands the traffic of a large segment of the Web population, a phenomenon reminiscent of winner-take-all markets. We have also developed a dynamic theory of site popularity that takes into account the stochastic nature of user decisions to visit given sites as well as the fact that newer sites are appearing at an ever increasing rate. The model accounts for the observed power law behavior and naturally provides the amplification factor responsible for the increased performance of the top performers.

Date: 1999-03-01
New Economics Papers: this item is included in nep-cmp, nep-ind and nep-tid
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