INSEAD Working Paper 2012/128/TOM/ACGRE
We empirically examine the impact of expanded product variety due to the adoption of the Internet on demand concentration using two large data sets from the movie rental industry, at both the movie level and the consumer level. We find that increasing product variety diversifies the demand away from both hits and niche products defined in absolute terms (e.g., the top/bottom 1,000 titles), but less significantly for hits than for niche products. Using relative terms (e.g., the top/bottom 10% of titles) to normalize the demand over time, we find that product variety increases the demand for hits and decreases the demand for niche movies, which is contrary to the celebrated \Long Tail" effect. We confirm our aggregate-level results using a consumer-level analysis and we conclude that new products appear much more quickly than consumers discover them, thus causing a \rich get richer" effect. Finally, we find no evidence that niche titles satisfy consumer tastes any better than popular titles and that a small number of heavy users are more likely to venture into niche products than light users are.