A Competitive Model of (Super)Stars

Following Rosen [1981], superstar effects (earnings convex in quality and a few firms reaping a large share of market earnings) occur with imperfect substitution between sellers, low (and possibly declining) marginal cost of output, and marginal cost falling as quality increases. However, markets without such characteristics have superstar effects, and the main result from the superstar model---small quality differences result in large earnings differences---may not hold. A competitive model can yield superstar effects when a few firms have quality significantly higher than others and cost increases in output, provided cost does not increase too rapidly in quality. Key Words: superstars & competition