In a seminal 1981 paper, the economist Sherwin Rosen worked out the mathematics behind these "winner-take-all" markets. One of his key insights was to explicitly model talent-labeled, innocuously, with the variable q in his formulas-as a factor with "imperfect substitution," which Rosen explains as follows: "Hearing a succession of mediocre singers does not add up to a single outstanding performance." In other words, talent is not a commodity you can buy in bulk and combine to reach the needed levels: There's a premium to being the best. Therefore, if you're in a marketplace where the consumer has access to all performers, and everyone's q value is clear, the consumer will choose the very best. Even if the talent advantage of the best is small compared to the next rung down on the skill ladder, the superstars still win the bulk of the market.
( Cal Newport )
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