Re: When is an MP3 file like a lighthouse?

Date: Wed Oct 24 2001 - 16:23:02 MDT

Eliezer writes:
> Each additional download creates wealth, because information is an
> infinitely duplicable good. If we all paid exactly the same amount to
> artists and middlemen, but got ten times as much content at one-tenth the
> price per unit, the net effect on industry revenues would be zero, and yet
> an enormous amount of wealth would have been created.

This is true, but it doesn't necessarily mean that everyone wins in
this situation. Even with reproduction costs of zero, it may not
be to the artist's advantage to sell their works infinitely cheaply.
There will be diminishing returns as they lower their costs. The point
that maximizes profits will not necessarily be a cheap sales price.

For example, the Dixie Chicks sold 9 million copies of their Fly album in
the two years after it was released [1]. It probably sold for about $15.
If they had reduced the cost to 1/10 as much or $1.50, would they have
sold 10 times as many copies? 90 million copies? That's almost as many
as there are households in America (116 million [2]).

I don't think the market is that big for the Dixie Chicks' music.
Even at $1.50 a copy, they would not sell an album to every household
in the country. They would make less money at 1/10 the price per unit.

The Dixie Chicks do better to sell their album for a larger amount and
sell to fewer people. The exact point of optimality will depend on how
quickly the market falls off as the price rises.



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