Superstars and the long tail: The impact of technology on market structure in media industries

Technological change has transformed creative media industries. Digitization lowers the costs of recording, storage, reproduction and distribution, while computer-based editing facilitates quality enhancement and special effects. Digital technology has altered the distribution of sales in ways that remain poorly understood: while some commentators have highlighted the growth of the “long tail”, others find digitization has raised the importance of “superstars”. This paper develops a theoretical model of differentiated goods with endogenous quality to investigate the impact of digitization on the distribution of firms. It finds that supply-side factors can generate superstars and long tail outcomes, and that coexistence of both phenomena can be explained by either a fall in fixed costs for basic products or a decline in market size.