Monday, April 27, 2009

What is a Song Worth?

It seems to me, people are always getting into trouble trying the figure out the 'inherent' value of stuff when economics, eons ago, figured out that a good's worth depends on how valuable it is to people and how scarce it is.

This NPR story this morning about music pricing is another example of this phenomenon. Sure, the same music can sell for radically different prices, but the price itself tells you nothing about its value. Its value to a consumer is a function of that consumers tastes, income, ease of purchase, etc.

The music industry thrived on their ability to make music scarce but this ability is quickly diminishing and they are left to scramble to figure out a new model. But the music isn't less valuable now, it is just not as scarce. This is good news. We are all better off in this new world. The only losers are the few bands and performers that would have been superstars that can no longer corner a market. The rewards to being a good band are still there, just not as humongous.

Robert Frank coined the phenomenon of the huge rewards to the very top performers in markets were performance can be mass produced, 'winner-take-all-markets.' These markets produce a lot of contenders but few winners. I imagine a music industry in the future that has nearly as many contenders but many more winners, all with a modest reward.

Update: A reader points me to this New York Times 'Economic View' article by the aforementioned Bob Frank discussing the role of winner-take-all markets and other markets in the equity of progressive taxes.

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