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

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Brynjolfsson, Erik, Hu, Yu (Jeffrey), Simester, Duncan·2011·Management Science
DOI 10.1287/mnsc.1110.1371
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Abstract

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.

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  • The 80/20 rule has been applied in a variety of fields, such as economics, biology, ethology, and civil engineering, where its validity and usefulness have been demonstrated.

    “This rule has been applied in a variety of fields, such as economics, 4-7 biology, 8,9 ethology, 10,11 and civil engineering, 12,13 where its validity and usefulness have been demonstrated.”

    From Pareto's 80/20 Rule and the Gaussian Distribution (2018) · cites this paper as [7]

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Authors
Brynjolfsson, E., Hu, Y. (., & Simester, D.
Affiliations
  • National Bureau of Economic Research (US)
  • Georgia Institute of Technology (US)
  • Massachusetts Institute of Technology (US)
ORCID
Venue
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Published
2011-08
Volume
57
Issue
8
Pages
1373-1386
ISSN
  • 0025-1909 (ISSN-L)
  • 1526-5501
DOI
10.1287/mnsc.1110.1371
OpenAlex
W2159347126
Cited by
847
References
43
Citations by year
2026: 43 · 2025: 54 · 2024: 62 · 2023: 71 · 2022: 43 · 2021: 53 · 2020: 49 · 2019: 49 · 2018: 56 · 2017: 56 · 2016: 55 · 2015: 49 · 2014: 46 · 2013: 33 · 2012: 35
FWCI
127.93
Type
journal article
Language
en
Open access
Licence
cc-by-nc-sa
Locations
  • Management Science (publishedVersion)
  • DSpace@MIT (Massachusetts Institute of Technology) (submittedVersion, cc-by-nc-sa)
  • SSRN Electronic Journal (submittedVersion)
  • SSRN Electronic Journal
Funders
  • National Science Foundation (0085725)
  • Carnegie Mellon University
  • Sloan School of Management, Massachusetts Institute of Technology
Topics
  • Social Sciences › Business, Management and Accounting › Marketing › Consumer Market Behavior and Pricing
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
  • Social Sciences › Business, Management and Accounting › Management Information Systems › Supply Chain and Inventory Management
Keywords
long tail, Pareto principle, sales concentration, search costs, niche products, online retail, recommender systems, multichannel retailing, product availability, sales distribution

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