Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales

By Erik Brynjolfsson, Yu Jeffrey Hu, Duncan Simester. Management Sciences, 2011

872 citations recorded by the source corpus.

Many markets have historically been dominated by a small number of best-selling products. The Pareto principle, also known as the 80/20 rule, describes this common pattern of sales concentration. However, information technology in general and Internet markets in particular have the potential to substantially increase the collective share of niche products, thereby creating a longer tail in the distribution of sales. This paper investigates the Internet's “long tail” phenomenon. By analyzing data collected from a multichannel retailer, it provides empirical evidence that the Internet channel exhibits a significantly less concentrated sales distribution when compared with traditional channels. Previous explanations for this result have focused on differences in product availability between channels. However, we demonstrate that the result survives even when the Internet and traditional channels share exactly the same product availability and prices. Instead, we find that consumers' usage of Internet search and discovery tools, such as recommendation engines, are associated with an increase the share of niche products. We conclude that the Internet's long tail is not solely due to the increase in product selection but may also partly reflect lower search costs on the Internet. If the relationships we uncover persist, the underlying trends in technology portend an ongoing shift in the distribution of product sales. This paper was accepted by Ramayya Krishnan, information systems.

Subfields: Management Science and Operations Research, Marketing, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/552889f59405cb0d4e48ad317d2d062668346dcc

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Citations in the corpus

Consumer Power: Evolution in the Digital Age (2013, background): “Labrecque et al. / Journal of Interactive Marketing 27 (2013) 257–269”
Information and the Skewness of Music Sales (2009, background): “…solely by changes in the number of consumers who know about the catalog album, and (2) in each release period, consumers who discover 41 A recent paper by Brynjolfsson, Hu, and Simester (2006) also shows some evidence that Internet marketing can make the distribution of sales less concentrated.”
Improving Aggregate Recommendation Diversity Using Ranking-Based Techniques (2012, background): “For example, one study [10], using data from online clothing retailer, confirms the “long-tail” phenomenon that refers to the increase in the tail of the sales distribution (i.”
Microfinance, the long tail and mission drift (2014, methodology): “The Long Tail Theory (Anderson, 2004 and Brynjolfsson et al 2011), successfully applied to sectors such as e-commerce can be a reference.”