The Rise of Niche Consumption

Brent Neiman and Joseph Vavra

No 26134, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Over the last 15 years, the typical household has increasingly concentrated its 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. Our model features heterogeneous markups because producers of popular products care more about their existing customers while producers of less popular niche products care more about generating new customers. Surprisingly, our model matches the observed trends in household and aggregate concentration without any change in aggregate market power.

JEL-codes: D12 D4 E21 E31 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-mac and nep-mkt
Note: EFG IO ITI ME PR
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Citations: View citations in EconPapers (11)

Published as Brent Neiman & Joseph Vavra, 2023. "The Rise of Niche Consumption," American Economic Journal: Macroeconomics, vol 15(3), pages 224-264.

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