On Search Cost and the Long Tail: The Moderating Role of Search Cost

E-commerce researchers and managers have known for some time that Long-Tail effects on pricing and product purchase are an important way in which internet retail differs from traditional “brick & mortar” businesses. These Long Tail effects are often directly attributed to lower search costs. Using a transaction-level model we provide important evidence that the principal impact of a reduction in search costs is that it changes which types of consumers are likely to buy niche products. Using consumer purchase information from over 4,000 households and over 17,000 purchases, from a single product category in 2004, we directly test the impact of search costs. We compare the product dispersion of purchases within broadband serviced homes to those in dial-up serviced homes. Our research shows that the conventional view that search costs directly impact consumer propensity to purchase a niche good is wrong, rather search costs act primarily as a moderating factor altering the impact of classic consumer purchase factors. This study is the first to both directly test search costs in online product dispersion, while at the same time isolating the impacts of other factors so as to remove confounding effects.