Over the last 15 years, households have increasingly concentrated its spending on a few preferred products; not “superstar” products of large market shares; households increasingly focus spending on different products from each other

The Rise of Niche Consumption. Brent Neiman, Joseph Vavra. University of Chicago, July 2019. https://faculty.chicagobooth.edu/brent.neiman/research/NV.pdf

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 focus spending on different products from each other. 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 driver of these divergent trends. When more products are available, households can select a subset better matched to their particular tastes, and this generates welfare gains not reflected in government statistics. Our 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 customer base. 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, Long-tail