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

59 Pages Posted: 5 Oct 2009 Last revised: 22 Jul 2010

See all articles by Benjamin Shiller

Benjamin Shiller

Brandeis University - Department of Economics

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Date Written: October 2009

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.

Suggested Citation

Shiller, Benjamin and Waldfogel, Joel, Music for a Song: An Empirical Look at Uniform Song Pricing and its Alternatives (October 2009). NBER Working Paper No. w15390, Available at SSRN: https://ssrn.com/abstract=1482108

Benjamin Shiller

Brandeis University - Department of Economics ( email )

Waltham, MA 02454-9110
United States
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HOME PAGE: http://benjaminshiller.com

Joel Waldfogel (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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National Bureau of Economic Research (NBER)

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University of Minnesota - Twin Cities - Department of Economics ( email )

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Minneapolis, MN 55455
United States

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