In what economist Robert Frank calls "winner-take-all markets," a few highly talented performers have huge earnings relative to the average performers in the market. Because consumers and firms seek out the "best" performers, small differences in talent or popularity get magnified into huge differences in pay. For example, gold medal winners of major Olympic events receive lucrative endorsement and personal appearance contracts. Slightly less-talented runners-up make little, if anything, from their participation. As a second example, professional sports teams pay a few marquee players $8 million-$20 million a year, whereas their slightly less-skilled teammates earn ten or twenty times less. In "winner-take-all markets" consumer spending gets channeled toward a few performers. The media then "hypes" these new stars, which further increases the public’s awareness of their talents. Other consumers then buy the stars’ products. Although it is not easy to stay on top, several superstars emerge. Some become so well known they can be identified by first name: Garth, Oprah, Martha, Tiger, Meg, Ken Jr., Jay, Ricky, Brad, Shania, etc. The high earnings of superstars result from the high revenues they generate from their work. Consider Shania Twain. If she sold only a few thousand CDs and attracted only a few hundred fans to each concert, the revenue she would produce—her marginal revenue product—would be quite modest. So, too, would be her earnings. But consumers have anointed Shania as queen of country/pop. For the moment, "she’s the one" and thus the demand for her CDs and concerts are extraordinarily high. She sells millions of CDs (41 million thus far), not thousands, and draws thousands to her concerts, not hundreds. Her extraordinarily high net earnings (an estimated $48 million in 1999) derive from her extraordinarily high marginal revenue product. So it is for the other superstars in "winner-take-all markets." Influenced by "media hype" but coerced by no one, consumers direct their spending toward a select few. The high marginal revenue product that results means strong demand for these stars’ services. And because top talent (by definition) is very limited, superstars receive amazingly high earnings.

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