Power Laws Describe the Power Term Paper

Excerpt from Term Paper :

The crux of this challenge however is the distribution and fulfillment system, an area Amazon.com for example had streamlined for low-quantity orders before ever launching their website and online store. This equates to what Elberse and Oberholzer-Gee (2006) mention as the ability of online retailers to in effect feed the creation of long-tail markets by representing thousands of products online and fulfilling them through synchronized order management and supply chain systems.

According to Newman (2005) the network centricity of the Power Law is a contributing factor to its efficiency. From the standpoint of online retailers, this network effect is illustrated by the level of supply chain integration, synchronization, and the use of real-time shared data to create stronger hub-like efficiencies within a Power Law-dominated industry. One assumption and area of future research is in the definition of velocities of information throughout a Power Law network. Figure 2 shows a graphical representation of a Power Law-dominated network, and the hubs have definite velocities of information associated with them.

Finding these velocities and their effects to force a market into a long-tail dynamic is worth a primary research effort.

Figure 2: A Graphical Representation of a Power Law-based Network

In a table, list the hypotheses in one column and the method used to test the hypotheses in the second column.

Long-tail market characteristics emerge year-over-year based on sales mix of products

Inter-Quartile and Kolmogorov-Smirnov Statistics

Selling results of each quartile of DVD sales; also the hypothesis that DVDs would move across quartiles over time, filling out the long tail distribution of the market

Qauntile Regression

Measuring the best-sellers vs. those titles that comprise the long tail

Negative Binomial Regression Model.

Hypothetical) Suppose a student wants to test to see if power law pattern holds for books purchased online. Discuss a) his research question, b) data collection and b) model he should test in order to conduct such research.

To test if the Power Law exists for books purchased online, the following research questions and hypotheses would be used:

Research questions and hypotheses

Research questions:

Quantify the influence of the hub-based structure to Power Law networks and define the relative level of information velocity necessary to attain the Long Tail in product sales over time.

What are the implications of search costs being nearly zero on the price elasticity of the good being searched for? This has implications for forecasting the impact of pursuing a long-tail strategy within online retailing.

Measure the influences of guided selling on recent product introductions to see how pricing elasticity can be retained despite this approach being most associated with low-margin, high inventory turn items.


There is a strong relationship between Long-Tail markets and the synchronization of supply chain networks

Low search costs alone influence pricing elasticity downward, forcing products to be inelastic; differentiation through value-based selling using warranties and reputation management systems drive up price elasticity

Long-tail markets are by nature inelastic and more governed by psychographic, not demographic, segmentation

For data collection, the following multi-phased strategy will be used:

Phase I: Internet Panel of Entertainment and Book Purchasers

The intent of speaking first with this group of respondents is to measure their search, guided selling, and overall re-directed clickstream traffic to products they originally had not planned to purchase, but eventually did. This is from a broad cross-section of respondents to set the foundation for the next phase.

Phase II: Deliver a customized web survey only to the specific stores' customers. Offer a $25 gift certificate for the store. Prompt several times for completion of the survey.

Phase III: Compare the broader distribution of responses from the Panel with the results from the store survey. Looking for significant differences and variations will highlight the results to attain the research objectives.

Model to use in order to test hypotheses: As this research design focuses on comparing two separate groups, Inter-Quartile and Kolmogorov-Smirnov statistical techniques will be used in addition to t-tests of statistical significance, and binomial, polynomial, and stepwise multiple regression for ascertaining in-group and between group variance. Finally Pearson's correlations will be completed across groups and if there are enough responses, Factor Analysis to ascertain customer groups.


Columbus (2001) - Defining Your Direction in Guided Selling. AMR Research. November 1, 2001. Louis Columbus. Accessed from the Internet on September 24, 2006 at http://lwcresearch.com/filesfordownloads/DefiningYourDirectioninGuidedSellin.pdf

Elberse and Oberholzer-Gee (2006) - Superstars and Underdogs: An Examination of the Long Tail Phenomenon in Video Sales. Harvard Business School Working Paper Series No. 07-015. September 5,…

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