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

  • Ben Shiller
  • Joel Waldfogel

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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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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  1. Mark Armstrong, 1999. "Price Discrimination by a Many-Product Firm," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 151-168.
  2. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 371-383.
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  4. Jack L. Knetsch & J. A. Sinden, 1984. "Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value," The Quarterly Journal of Economics, Oxford University Press, vol. 99(3), pages 507-521.
  5. Geoffrey Heal, 1980. "Spatial Structure in the Retail Trade: A Study in Product Differentiation with Increasing Returns," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 565-583, Autumn.
  6. Hanming Fang & Peter Norman, 2003. "To Bundle or Not to Bundle," Cowles Foundation Discussion Papers 1440, Cowles Foundation for Research in Economics, Yale University.
  7. Phillip Leslie, 2004. "Price Discrimination in Broadway Theater," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 520-541, Autumn.
  8. Peter A. Diamond & Jerry A. Hausman, 1994. "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 45-64, Fall.
  9. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
  10. Yannis Bakos & Erik Brynjolfsson, 1997. "Bundling Information Goods: Pricing, Profits and Efficiency," Working Paper Series 199, MIT Center for Coordination Science.
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