![]() ![]() But in other cases – perhaps most of them – the record label will make inaccurate guesses. In some cases, it will make accurate guesses and release products that end up being successful. ![]() When commercial success is unpredictable, however, an investor would decide to release a new product based on its expectation of commercial success. In that case, an increase in the number of products released would provide consumers with new products that are, by definition, less appealing than the ones that were already available in the market. To illustrate it, suppose that the commercial success of a product were perfectly predictable at the time of release. The mechanism at work behind our idea is fairly simple. When an increase in the number of new products is combined with unpredictability of product success, which is a generic feature of new products and especially cultural products, then the effects of digitisation on the welfare of consumers can be much higher than the traditional long tail mechanism suggests. In the creative industries, digitisation has led to a radical increase in the number of songs, books, or movies brought to market. Technological change has sharply reduced the costs of production, distribution, and promotion in many industries, unleashing large numbers of new products. While online retailing has clearly benefited consumers by allowing sellers to carry a much larger choice of already-existing products, our work focuses on a different effect of digitisation. Some research finds that the benefit consumers obtain from access to a long tail of additional varieties of books may be as high as $1.03 billion per year in 2000. Accessing this larger set of products would naturally amount to important benefits to consumers. ![]() Greater consumer access to content has led to an important work on the “long-tail” phenomenon: while the choice set faced by consumer was limited to the shelf-space available in brick-and-mortar stores before the advent of the Internet, consumers can now access and benefit from a much larger set of products online. For a most interesting exploration of this online phenomenon, read "The Long Tail" by Chris Anderson (Hyperion, 2006).Digitisation, in the form of online retailing, has long been understood to deliver welfare benefit to consumers. He also mentions blogs and wikis as benefactors of the Long Tail as more people contribute editorial material than ever before. Even though a smaller quantity of each item is sold, there is a much greater variety of these items to sell.Īnderson asserts that the Long Tail manifests in Google and eBay, which derive significant revenue because they deal with a huge number of customers. The low-quantity items stretch out on the x-axis of the graph, creating a very long tail that generates more revenue overall. Theorized by Wired Magazine editor Chris Anderson, who turned the notion into a book in 2006 titled "The Long Tail: Why the Future of Business is Selling Less of More," the title refers to a graph showing fewer products selling in large quantities versus many more products that sell in low quantities. Most notably, book, video and music sales, where there is a vast supply of product, have benefited significantly from this approach, exemplified by, Netflix and Rhapsody. Another key factor is that merchandise is offered via recommendations with links from one product to another so that people who purchase one item are encouraged to look at several others. The potential for online retailers to make more money than their bricks and mortar counterparts because there is virtually unlimited "shelf space" to offer products. ![]()
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