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

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

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

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

Competing with Privacy

We analyze the implications of consumer privacy for competition in the marketplace. Firms compete for consumer information and derive revenues both from consumer purchases as well as from disclosing consumer information in a secondary market. Consumers choose which firm to patronize and how much personal information to provide it with. We show that firms maximize profits by focusing on a single revenue source and competing at the extensive rather than the intensive margin, outperforming competitors by attracting a larger customer base. We also show that competition drives the provision of services with a low level of consumer information disclosure (high level of privacy), but higher competition intensity in the marketplace need not improve privacy when consumers exhibit low willingness to pay. Our findings are relevant to the business models of Internet firms and contribute to inform the regulatory debate on consumer privacy

Bandwidth allocation in peer-to-peer file sharing networks

We present a model of bandwidth allocation in a stylized peer-to-peer file sharing network with s peers (sharers) who share files and download from each other and f peers (freeriders) who download from sharers but do not contribute files. Assuming that upload bandwidth is scarcer than download bandwidth and efficient allocation, we compute the expected bandwidth obtained by each peer. We show that (i) while the exact formula is complex, s/(s + f) is a good approximation and (ii) sharers (freeriders) obtain bandwidth larger (smaller) than s/(s + f). The paper constitutes a first step towards a general analytical foundation for scarce resource allocation in peer-to-peer file sharing networks

Bandwidth Allocation in Peer-to-Peer File Sharing Networks

We present a model of bandwidth allocation in a stylized peer-to-peer file sharing network. Given an arbitrary population of peers composed of sharers and freeriders, where all peers interconnect to maximize their allocated bandwidth, we derive the expected band- width obtained by sharers and freeriders. We show that sharers are always better off than freeriders and that the difference decreases as the size of the network grows. This paper constitutes a first step towards providing a general analytical foundation for resource allocation in peer-to-peer networks

Word of Mouth and Recommender Systems: A Theory of the Long Tail

I present a model to assess the extent to which recommender systems can account for the ‘long tail’, an increase in the tail of the sales distribution. Consumers face a search problem within a pool of horizontally differentiated products supplied by a monopolist. They are endowed with a taste profile that determines their probability of matching with any given product, but arrive to the market uninformed and cannot identify which products are more likely to yield a match. Consumers may search for a match by drawing products from the assortment or by seeking word of mouth recommendations from other consumers. Product evaluations prior to purchase and the exchange of recommendations are both shown to arise endogenously, increasing firm profits and the concentration of sales. Introducing a recommender system to act as an intermediary in the recommendations exchange further increases firm profits and affects sales concentration. Insights are derived on the mechanisms driving concentration in artistic markets and their implications for the long tail debate. The model is suited for experience good markets such as music, cinema, literature and video game entertainment

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

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.Search, Word of Mouth, Sales Concentration, Long Tail

Bandwidth Allocation in Peer-to-Peer File Sharing Networks

We present a model of bandwidth allocation in a stylized peer-to-peer file sharing network. Given an arbitrary population of peers composed of sharers and freeriders, where all peers interconnect to maximize their allocated bandwidth, we derive the expected bandwidth obtained by sharers and freeriders. We show that sharers are always better off than freeriders and that the di®erence decreases as the size of the network grows. This paper constitutes a first step towards providing a general analytical foundation for resource allocation in peer-to-peer networks.Peer-to-Peer, Network formation, Resource allocation, Congestion