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Music for a Song: An Empirical Look at Uniform Song Pricing and its Alternatives

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  • Ben Shiller
  • Joel Waldfogel

Abstract

Economists have well-developed theories that challenge the wisdom of the common practice of uniform pricing. With digital music as its context, this paper explores the profit and welfare implications of various alternatives, including song-specific pricing, various forms of bundling, two-part tariffs, nonlinear pricing, and third-degree price discrimination. Using survey-based data on nearly 1000 students’ valuations of 100 popular songs in early 2008 and early 2009. We find that various alternatives – including simple schemes such as pure bundling and two-part tariffs – can raise both producer and consumer surplus. Revenue could be raised by between a sixth and a third relative to profit-maximizing uniform pricing. While person-specific uniform pricing can raise revenue by over 50 percent, none of the non-discriminatory schemes raise revenue’s share of surplus above 40 percent of total surplus. Even with sophisticated pricing, much of the area under the demand curve for this product cannot be appropriated as revenue.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15390.

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Date of creation: Oct 2009
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Publication status: published as “Music for a Song: An Empirical Look at Uniform Song Prices and its Alternatives.” (with Ben Shiller), Journal of Industrial Economics, December 2011 (revised version of NBER Working Paper 15390, October 2009).
Handle: RePEc:nbr:nberwo:15390

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Cited by:
  1. Benjamin Shiller, 2013. "Digital distribution and the prohibition of resale markets for information goods," Quantitative Marketing and Economics, Springer, vol. 11(4), pages 403-435, December.
  2. Thomes, Tim Paul, 2011. "An economic analysis of online streaming: How the music industry can generate revenues from cloud computing," ZEW Discussion Papers 11-039 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2011. "Bundle-Size Pricing as an Approximation to Mixed Bundling," American Economic Review, American Economic Association, vol. 101(1), pages 263-303, February.
  4. Leung, Tin Cheuk, 2012. "Music Piracy: Bad for Record Sales but Good for the iPod?," MPRA Paper 45772, University Library of Munich, Germany.
  5. Joao Macieira & Pedro Pereira & Joao Vareda, 2013. "Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play," Working Papers 13-15, NET Institute.
  6. Andrew Eckert & Douglas West, 2013. "Proliferation of Brewers’ Brands and Price Uniformity in Canadian Beer Markets," Review of Industrial Organization, Springer, vol. 42(1), pages 63-83, February.
  7. Bellemare, Marc F. & Holmberg, Andrew M., 2010. "The Determinants of Music Piracy in a Sample of College Students," MPRA Paper 23641, University Library of Munich, Germany.

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