Niche Or Broad? The Platform Strategy Based On Consumer Search

This paper focuses on the strategic selection of goods sold on commercial platforms.In the era of digital economy,platforms and online shopping have become one of the main choices for consumers.The emergence of online platforms significantly reduces consumers’ search costs,improves product diversification,and enables consumers to have more choices to meet their individual needs.This paper investigates how platforms strategically determine the proportion of niche and broad products within a framework of sequential consumer search.Mass products offer modest utility to most consumers.Niche products offer high utility to a small number of interested consumers,but low utility to disinterested consumers.Under the framework of consumer sequential search,the traditional view is that online shopping reduces consumer search costs and makes consumers more inclined to look for specialty niche products that match their needs very well.Therefore,the proportion of niche products will increase in the platform,which is the ”long tail effect” defined by the literature.However,this paper finds that when the search cost is low enough,with the reduction of the search cost,the niche products will not increase,but will decrease.This is because the past studies often ignore the above facts are dependent on the e-commerce platform,but as the business of commercial companies,the e-commerce platform itself has the profit motive,so there is the possibility of manipulating the proportion of mass commodities for profit.More specifically,as the cost of searching decreases,the incentive for the platform to add broad products increases,which in turn increases the number of broad products.On this basis,this paper also finds that the existence of product recommendation mechanism will strengthen this effect,and then lead to more broad products.In order to ensure the robustness of the results,this paper also considers the same problem in other revenue modes,and finds that the main conclusions are still maintained in the three existing mainstream revenue modes,namely,the percentage of sales,the auction of advertisement,and the per-click fee.Finally,through the welfare analysis,it is known that such behavior of the platform will have different impacts in different profit models.But when the search costs are small enough,the platform’s behavior always damages the overall welfare of society.In addition,in the sales percentage model mainly considered in this paper,industry profits are increased and consumer surplus is damaged.