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Winner‐take‐all or long tail? A behavioral model of markets with increasing returns
Author(s) -
Lamberson P.J.
Publication year - 2016
Publication title -
system dynamics review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.491
H-Index - 57
eISSN - 1099-1727
pISSN - 0883-7066
DOI - 10.1002/sdr.1563
Subject(s) - outcome (game theory) , heuristic , simple (philosophy) , range (aeronautics) , market share , set (abstract data type) , distribution (mathematics) , market power , economics , computer science , microeconomics , behavioral modeling , econometrics , mathematical optimization , artificial intelligence , engineering , mathematics , mathematical analysis , philosophy , programming language , epistemology , finance , monopoly , aerospace engineering
This paper develops a model of consumer choice that demonstrates why some markets with increasing returns converge to a winner‐take‐all outcome while many others have a power law market share distribution with a “long tail” of small‐share products. The model takes the standard winner‐take‐all model of increasing returns and adds a simple behavioral assumption: when faced with complex choices, decision makers first quickly eliminate many of the available options using a simple heuristic before selecting from the remaining feasible set . We examine the market‐level consequences of this model using an agent‐based simulation. Under a wide range of parameters the model produces a power law share distribution. But when consumers have very large feasible sets the market converges to a winner‐take‐all outcome, and when consumers have very small feasible sets the model produces an evenly split market. Copyright © 2017 System Dynamics Society