Magnatune - Variable Pricing for Music

31 Pages Posted: 17 May 2005  

Tobias Regner

Universit├Ąt Jena

Javier A. Barria

Imperial College London

Date Written: March 2005

Abstract

The paper analyses the behaviour of customers of the online music label Magnatune. Customers may pay what they want for music albums, as long as the payment is within a given price range ($5-$18).

We study the relationship between artists/labels and customers and use a moral hazard model for our analysis. It considers social preferences and also the importance of free sampling of experience goods.

Magnatune's comprehensive pre-purchase access facilitates music discovery and allows an informed buying decision setting it apart from conventional online music stores. We conclude that this open contracts design can encourage people to make voluntary payments. The results of our empirical analysis validate this, as the average payment is $8.20, far more than the minimum of $5 and even higher than the recommended price of $8.

Keywords: Social preferences, reciprocity, music industry, experience goods, psychological game theory, emotions

JEL Classification: C24, C70, C93, D82, L82

Suggested Citation

Regner, Tobias and Barria, Javier A., Magnatune - Variable Pricing for Music (March 2005). Available at SSRN: https://ssrn.com/abstract=721596 or http://dx.doi.org/10.2139/ssrn.721596

Tobias Regner (Contact Author)

Universit├Ąt Jena ( email )

Carl-Zeiss-Str. 3
Jena, 07743
Germany

Javier A. Barria

Imperial College London ( email )

Exhibition Road
London SW7 2AZ
United Kingdom

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