Word of Mouth and Taste Matching: A Theory of the Long Tail

Andres Hervas-Drane ()
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Andres Hervas-Drane: Columbia University and Universitat Pompeu Fabra, http://www.andreshervas.com

No 07-41, Working Papers from NET Institute

Abstract: I present a model to assess the impact of demand-side factors on the concentration of sales within large product assortments. Consumers face a search problem within an assortment of horizontally differentiated products supplied by a monopolist. They may search for a product match by drawing products from the assortment or by seeking word of mouth recommendations from other consumers. Product evaluations prior to purchase and word of mouth are shown to arise endogenously, and increase the concentration of sales. I show that taste matching mechanisms such as recommender systems, which allow consumers to obtain product recommendations from others with similar preferences, reduce sales concentration by generating a long tail effect, an increase in the tail of the sales distribution. Insights are derived on the mechanisms driving concentration in artistic markets and their strategic implications for the firm. The model is suited for experience good markets such as music, cinema, literature and video game entertainment.

Keywords: Search; Word of Mouth; Sales Concentration; Long Tail (search for similar items in EconPapers)
JEL-codes: C78 D42 D83 L15 M31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2007-10, Revised 2009-01
New Economics Papers: this item is included in nep-lab, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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