Rajiv Sinha, Arizona State University
Elliot Rabinovich, Arizona State University
Charles Noble, University of Mississippi
Timothy Laseter, University of Virginia
Our paper explores and reconciles two seemingly contradictory theories for market growth and appropriate strategic responses in Internet retailing. The popular “Long Tail” view argues that the greater variety offered on the Internet expands the range of products that can be sold profitably by providing better matching between customer desires and available products. The “Superstar” or “Steep Tail” model offers an antithetical view, suggesting that the very best products will increasingly dominate categories due to the growth of “winner-take-all” markets. Our empirical research examines data from over 5,000 SKUs of an Internet retailer of durable consumer goods to understand how product popularity affects return rates and product profitability. While past research on media consumables generally supports the Long Tail view, our data on household durables shows significantly higher return rates in the distribution tail, supporting the Superstar perspective. However, this result is balanced with the finding that product margins are higher for niche products. Overall, these findings suggest the Long Tail view is not unilaterally dominant in online retailing and should be considered in tandem with a Superstar view.