Management Science and Information Systems’Seminar（2018-02）
Topic:A Theory Unifying The Long Tail and Blockbuster Phenomena
Speaker:Ming Hu，Rotman School of Management, University of Toronto
Time:Tuesday, June 5th, 10:00-11:30 a.m
Place:Room 217, Guanghua Building 2
We provide a theory that unifies the long tail and blockbuster phenomena. Specifically, we analyze a three-stage game where, first, a large number of potential firms make entry decisions, then those who stay in the market decide on the investment in its product, and lastly customers with heterogeneous preferences arrive sequentially to make purchase decisions based on product quality and historic sales under the network effect. We show analytically that a growing network effect always contributes to more sales concentration on a small number of products, supporting the blockbuster phenomenon. However, product variety and investments in quality, as an outcome of firms' ex ante competitive decisions, may increase or decrease, as the network effect grows. When a parameter that determines the strength of the network effect is below a particular threshold, an increasing network effect would shift more sales towards the products with higher quality, preventing more products from entering the market ex ante and inducing firms to adopt the blockbuster equilibrium strategy by making high-budget products. When the parameter is above the threshold, the network effect will easily cause the market to be concentrated to a few products; even some low-quality products may have a chance to become a "hit." Interestingly, in this case, when the network effect is growing, the ex-ante equilibrium product variety will be broader and firms adopt the niche equilibrium strategy by making low-budget products, a finding which supports the long tail theory. We test our theory with the movie box office data and find strong supporting evidence. (Based on joint work with Yinbo Feng)
Ming Hu is a Professor of Operations Management at Rotman School of Management, University of Toronto, and one of the 2018 Poets & Quants Best 40 Under 40 MBA Professors. His research explores strategic interactions among firms and between firms and consumers, in the context of revenue management, supply chain management and service operations management. Most recently, he focuses on operations management in the context of sharing economy, social buying, crowdfunding, crowdsourcing, and two-sided markets, with the goal to exploit operational decisions to the benefit of the society. His research has been featured in media such as Financial Times. He is the recipient of Wickham Skinner Early-Career Research Accomplishments Award by POM Society (2016) and Best Operations Management Paper in Management Science Award by INFORMS (2017). He currently serves as the editor-in-chief of Naval Research Logistics, co-editor of a special issue of Manufacturing & Service Operations Management on sharing economy and innovative marketplace, and associate editor of Operations Research and Manufacturing & Service Operations Management, and senior editor of Production and Operations Management. He received a master's degree in Applied Mathematics from Brown University in 2003, and a Ph.D. in Operations Research from Columbia University in 2009.
Your participation is warmly welcomed!