Policy Seminars

Speaker: Joel Waldfogel
The Wharton School

Topic: Music for a Song: An Empirical Look at Uniform Song Pricing and its Alternatives
Date/Place/Time: Friday, May 29, 2009 at 1:30PM-3:00PM
UCLA Anderson Entrepreneurs Hall C303
Abstract:
Economists have well-developed pricing theories that challenge the wisdom of the common practice of uniform song pricing. 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 500 students’ valuations of 50 popular songs in early January, 2008. 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 nearly 10 percent relative to profit-maximizing uniform pricing and by over a fifth relative to current $0.99 uniform pricing. Moreover, revenue could be increased by a tenth while maintaining consumer surplus at the high level accompanying current $0.99 uniform song pricing. While person-specific uniform pricing can raise revenue by three quarters, none of the non-discriminatory schemes raise revenue’s share of surplus above 35 percent. Even with sophisticated pricing, much of the area under the demand curve for this product cannot be appropriated as revenue.
Link to paper (if available): Click here (external site)