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Selling digital music: business models for public goods

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  • Jens Hougaard

    ()

  • Mich Tvede

    ()

Abstract

This paper considers the market for digital music. We claim that the combination of the MP3 format and peer-to-peer networks has made music non-excludable and this feature is essential for the understanding of the economics of the music market. We study optimal business models for selling non-excludable goods and show that despite promising theoretical results, adding just a slight uncertainty about the number of customers has significant negative implications for profitability. Indeed, as the average number of customers tends to infinity the average payment per customer converges to zero. Therefore, the music industry should concentrate on alternative ways of creating profit such as selling access to listeners, concerts, merchandise, ringtones etc.
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Suggested Citation

  • Jens Hougaard & Mich Tvede, 2010. "Selling digital music: business models for public goods," Netnomics, Springer, vol. 11(1), pages 85-102, April.
  • Handle: RePEc:kap:netnom:v:11:y:2010:i:1:p:85-102
    DOI: 10.1007/s11066-009-9047-0
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    File URL: http://hdl.handle.net/10.1007/s11066-009-9047-0
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    Keywords

    Digital music; Experience good; Public good; Music industry; Piracy; D2; D4;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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