The Rise of Niche Consumption

59 Pages Posted: 10 Mar 2018 Last revised: 16 Jun 2019

See all articles by Brent Neiman

Brent Neiman

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Joseph Vavra

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: June 14, 2019

Abstract

We show that over the last 15 years, the typical household has increasingly concentrated its spending on a few preferred products. However, this is not driven by ``superstar'' products capturing larger market shares. Instead, households increasingly differ in terms of which products they focus their spending on. As a result, aggregate spending concentration has in fact decreased over this same period. We use a novel heterogeneous agent model to conclude that increasing product variety is a key force underlying these divergent trends. When more products are available, households can select a subset better matched to their particular tastes. This results in substantial welfare gains that are not reflected in standard government statistics. The model features heterogeneous markups because producers of popular products care more about maximizing profits from existing customers while producers of less popular niche products care more about expanding their set of customers. Surprisingly, however, our model can match the observed trends in household and aggregate concentration without any resulting change in aggregate market power.

Keywords: Product Concentration, Niche Products, Market Power, Markups, Polarization, Long-tail

JEL Classification: E21, E31, D12, D4

Suggested Citation

Neiman, Brent and Vavra, Joseph, The Rise of Niche Consumption (June 14, 2019). Available at SSRN: https://ssrn.com/abstract=3137782 or http://dx.doi.org/10.2139/ssrn.3137782

Brent Neiman

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/brent.neiman/index.html

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph Vavra (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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