Superstar Phenomenon

The Superstar Phenomenon

When thinking about the inequality perpetuated by online businesses, we should start with a 1981 paper by University of Chicago economist Sherwin Rosen. He offers an explanation of the "superstar phenomenon," where a small number of people receive an outsized share of money and attention.

He argues that the superstar phenomenon in industries like music is biggest when there are heterogenous providers. So the more differentiated the providers on a market are, the more proceeds will go to people at the top. Rosen wrote: “lesser talent often is a poor substitute for greater talent … hearing a succession of mediocre singers does not add up to a single outstanding performance.”

Low distribution costs on the Internet accelerate these trends. In music, for example, Spotify and YouTube free creators from the constraints of concert halls. That's why the Despacito music video has almost as many views as there are people in the world: 7.2 billion.

On the Internet, there are two ways to reduce superstar effects: (1) create platforms that disincentivize follower counts and (2) promote mediums with low replay benefits such as podcasts (where people don't listen to the same episode over and over again) instead of music (where people listen to the same songs hundreds of times).