iPrice

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James Markels has a piece up at the America's Future Foundation's Brainwash webzine puzzling over why Apple insists on charging the same price, 99 cents, for every song on iTunes, whether it's the top single on the Billboard charts or one of Marky Mark and the Funky Bunch's lesser known tunes. (I just had a moment of serious cultural vertigo, by the way, when I realized I have no idea who half of the top ten artists on the Billboard pop chart are.) He makes the basic arguments for the virtues of market pricing you'd expect, and normally I'd find those pretty persuasive. The only problem is, it's basically impossible for me to believe that Steve Jobs (and the army of fresh-faced genii in his employ) don't understand those arguments perfectly well. They must've devoted a lot of expensive brain-hours to the question and decided monopricing was the way to go. So why might that be?

One reason is the flip side of an idea Markels broaches: Prices signal quality. People might conclude that an expensive song is likely to be better (because more in demand), and conversely, might be willing to take a chance on an unknown at a lower price. Yet there's a pheonomenon familiar to marketers where you can sometimes sell more of a product by raising the price, precisely because peoople do sometimes take prices as a proxy for quality. Maybe not for big-ticket items like cars, where you're going to do a lot of investigating before dropping tens of thousands of dollars, or for items where the quality can be easily measured by casual observation. But I'm willing to bet that, say, for a pair of headphones, a lot of people who want to get good sound but aren't devoted audiophiles will follow a heuristic like: "Walk into Best Buy and grab the second most expensive pair." Now music, like a lot of other cultural goods, is a long tail product: Sure, there are those megahits at the top that sell disproportionate numbers, but most of the action and the sales, especially online, where you've got a bottomless inventory, is going to be in the aggregate sales of large numbers of smaller niche artists. (This is especially the case as a kind of online feedback effect kicks in, where record industry economics no longer tend to push convergence for most consumers on a relatively narrow mainstream.) If that's the case, you might not want to signal that a huge portion of your inventory, which when added up actually accounts for most of your sales, is in the digital equivalent of the remainder bin, especially when you've got other sophisticated means of suggesting songs tailored to a person's specific tastes.

That long tail logic also points to another consideration: People are actually going to be a lot less price elastic than you might think, especially for the niche items. That is, suppose Quasi is selling a lot fewer albums than Kanye West. The normal market conclusion would be that Quasi should be priced lower to move more. But that's not necessarily the case, because most consumers aren't actually sitting there making the decision at the margin between Quasi and Kanye. Rather, the people who like Quasi are going to buy it whether it's at 99 cents or 50, and even if it were 10 cents, Quasi just ain't going to be most people's cup of tea. Conversely—and this is more speculative—the items at the top are likely to be stuff for which people have thinner preferences, and are therefore more price elastic. That is, a lot of people are going to download Eminem (or whatever) precisely because it's the hot track everyone else is listening to, but might be dissuaded by an extra 50 cents.

Note also that one of the major reasons for market pricing doesn't apply to information goods like downloaded music. If I've got a hundred (physical) widgets in stock, I'm going to be able to sell exactly a hundred of them. (Of course, if they're popular, I may order more, though I as the retailer also have to pay for another batch.) So I'm primarily interested in the hundred consumers who'll pay the most for it. The finite number of widgets get allocated to the people who place the highest value on them, and I maximize my profits. But the marginal cost of a downloaded song is zero: There's actually no allocation problem, because I can download the same song you just did. The supply, once the song is created, is effectively infinite. That means it's going to be especially profitable to sell more units at a lower price.

A final point has to do with that magic 99 cent barrier and what I'm going to call "internal transaction costs." You see this all the time, of course: Lots of items are sold at $19.99, and many fewer at $20.01, because a lot of people are apparently acting on a heuristic that sees the jump from "less than a dollar" to "more than a dollar" as a kind of special inflection point, whereas they'll regard the difference between 96 and 98 cents or $1.05 and $1.07 as negligible. Now, you might say this is arbitrary or irrational. But while it may be the former, I'm not sure it's the latter.

Imagine someone offers you a good you're somewhat interested in for $10.50. At that price, you think, sure, it's worth it. Well, how about $10.51? Surely if it was worth it at $10.50 (you might think), it's just as good a deal at one penny more. But of course, iterate that reasoning and you've got an economic version of the sorites paradox: If you really believed that one penny couldn't be the difference between "worth it" and "too expensive," the price could be raised indefinitely. The economists' solution is to suppose that there really is some one-cent margin at which you'd be paying exactly a penny more than the utility you'd get from the good. And as an assumption for formal economic modeling, maybe that works out. But I think what's more likely is that if we distinguish our actual, psychological preferences from our "revealed preferences" or behavior (something the economist may want to resist, but I think is pretty intuitive to everyone else), is that those internal preferences are actually fuzzy. It's not like there's some Platonic form of my real valuation of the good, down to the penny, buried in my head somewhere waiting to be "revealed." I probably just know I want a certain album roughly so-and-so much—I'll snatch it up at $10, but not $20.

The way we actually translate those fuzzy preferences into behavior is by using rough heuristics like the "less than a dollar" rule, because it's probably just not worth spending the amount of time to figure out the one-cent margin at which I want the damn thing or not. And that's where "internal transaction costs" come in. I'm thinking of things like the "choice paralysis" that Barry Schwartz talks about in The Paradox of Choice, where he suggests that if you present someone with more choices for a particular kind of product, they may just not buy anything rather than going through the bother of figuring out which of a hundred sorts of toothpaste they want. (Or, if they do buy, they'll probably use some heuristic: "Grab the first one I see, or the name brand, or the one with the prettiest package.") Markels seems to consider this possibility, writing:

Jobs also expressed concern that a variable pricing model might confuse shoppers. If he means shoppers that never go to supermarkets, restaurants, car dealerships, or practically any other store in America, he might have a point. [….] Otherwise, shoppers are more than able to weigh a variety of prices to make their purchasing decisions.

But things are likely to be somewhat different for very low priced goods purchased online. Because there, all the other transaction costs are drastically reduced. The time and energy required to acquire the songs is near zero, and you've got a fair amount of information readily available to suggest whether you're going to like a particular song or album (collaborative filtering, reviews). That means the relative influence of those "internal" transaction costs, like translating a fuzzy internal preference into a "buy" decision at a particular price point, rises dramatically.

[Cross-posted at Notes from the Lounge]

NEXT: Kennedy Korner

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  1. One reason might be so that they can fairly evaluate the material for better future pricing.

    It is one thing to lissen to you say that Marky Mark and the Funky bunch don’t make music as valuable. It is a better thing to know what the market thinks about Marky Mark songs when it is presented with these things under a content (or perceived-quality) neutral pricing scheme.

    The music industry has long been directing what the biggest sellers will be. Jobs is restoring the market’s voice in deciding what the market wants to hear. After consumer preferences have been clearly expressed, then they will better know what categories of songs to value price and what songs to premium price.

    I am glad Jobs is doing it that way. There is a pervasive illusion around here that all markets are created equal and that they all lead to the same level of responsiveness to consumer preferences in the long run. If you buy into this illusion, Jobs strategy is bound to remain obscure to you.

  2. “decided monopricing was the way to go”

    So you are looking for the itunes bargain bin?

  3. You make several good points. But one that I think you miss out on is the benefit that comes to the iTunes brand from having everything listed at a single price that many consumers find to be acceptable for a lot of the content that they want to purchase.

    In a sense, it’s not too different from how consumers often prefer to go for flat-rate, all-you-can-eat Internet service plans even though they might save a few bucks by using a metered plan, simply because they value the peace-of-mind that comes from not having to worry about how much bandwidth they’re consuming. iTunes is a little different, in that a consumer explicitly signs off on the purchase prices for the items he consumes rather than simply receiving a bill at the end of the month, but a brand-identity level, which can play a role in someone choosing to shop at a site in the first place, I think the peace-of-mind factor often still exists.

  4. Oh Jesus Aitch Christ Julian. I mean thanks for keeping most of that off the main page, but WTF? The first paragraph makes for a fine post, but the rest of it is just way too much to be a conversation starter.

    My guess is that you’re taking that article out for a test spin before it gets published somewhere. Using us Hit and Run commenters as unpaid editors to vet articles irritates me a little bit.

  5. You guys still pay for downloading music?

  6. Maybe, they are simply trying to avoid hassles such as price manipulation by the recording industry which might try to hype up the price of an artist by placing some strategic buy orders. Also, this way they don’t offend older artists who are fading. Can you imagine the reaction if the Rolling Stones dropped to 84 cents?

  7. Perhaps because flat rate pricing greatly simplifies many aspects of operating the business. Bear in mind, Apple claims that iTunes is pirmarily a vehicle to sell more hardware. In that light, keeping iTunes as simple as possible make a lot of sense.

  8. There are some bands that have haggled up their prices, or at least did for a while. Dark Side of the Moon was priced at something like $1.49 per track. So I immediately thought “Well, I can get something else first. Maybe I’ll come back to Pink Floyd later.” Two years on, and I haven’t gone back and bought any.

  9. Steve Jobs is selling iPods and building a captive audience for downloaded content from iTunes. If Apple can keep the price at 99 cents, people will download more content and be more wedded to the iPod. Apple makes very little money from iTunes. Music companies make money, but not as much as they would like.

  10. Quasi? Are you serious? Guh.

  11. I think what it boils down to is that they did the market research and found that 99 cents (or 1 dollar or whatever) is the most people are willing to pay when downloading for free is an alternative.

  12. One big benefit is that you don’t have to think about the price, or check before you click to buy a track.

    If prices varied, customers would have to keep an eye on that, because they wouldn’t enjoy clicking to buy a track and later noticing that it cost $3.99 or something instead of $.99. This is especially important if you’re not using the shopping cart feature and download things as you click on them.

    If you have to pause to check the price, that’s a pause in which you can decide not to buy. Or, you can decide to check the file-sharing services.

    Finally, who’s going to decide the price, if the price varies? It’s going to be the labels, and if they control pricing, you know damn well all the prices are going to creep up, at which point the store will lose customers by the busload.

  13. The price has nothing whatsoever to do with the quality of the tracks, and to claim that the most popular tracks out there in cookie-cutter land are the “best” or most worthy is a stretch, to put it kindly. Jobs has chosen a user-friendly, one-price-fits-all model to make purchasing easy and reliable: in other words, brainless. And isn’t that what the public wants?

  14. Am I hallucinating or did Warren just claim I’m exploiting the H&R readers when I write a longer post than he’s interested in reading? Here’s a rule of thumb: If I put a post below the fold, it’s probably at least a few paragraphs long. If you’re not interested in a few paragraphs on the topic introduced on the main page, don’t click through.

  15. “Jobs also expressed concern that a variable pricing model might confuse shoppers. If he means shoppers that never go to supermarkets, restaurants, car dealerships, or practically any other store in America, he might have a point. [….] Otherwise, shoppers are more than able to weigh a variety of prices to make their purchasing decisions.”

    Because when you’re at the grocery store, and you don’t like the price on mac & cheese, you can just bring up a Kazaa window and get it for free.

    Or maybe it’s really quite different.

  16. The most popular tracks are also the easiest to find on the peer-to-peer networks, and the most likely to be available in the format and quality level of your choosing.

    They are also most likely to be available in a variety of brick-and-mortar stores at loss-leader prices.

  17. Mark Borok,

    That might be right, if 99 cents was just the ceiling, rather than the ceiling and floor. In other words, let’s say they DID do some market research like you presume, and found that 99 cents was the max that most would pay when downloading for free is an alternative. So, then, why would that prevent them from pricing slow-movers at rates LOWER than 99 cents?

    Sorry, but it doesn’t “boil down” to that.

    And, to the bigger issue, yes, Apple does indeed exercise some amount of price manipulation—for example, some albums with 15+ songs only cost $9.99 if you buy the entire album. Others cost more, like $11.99, even though they don’t have more songs. Not to mention that certain songs are available only if you buy the whole album, which further distorts the pricing structure.

  18. I think the answer is FAR simpler than the complex argument you’re proposing. If you “grok” Apple’s products, you know that simplicity is one of the key things the company strives for. Apple believes (and I agree) that making complex things as simple as possible adds real value to something. For MANY people, the sheer act of getting online and performing simple acts is intimidating. For those people, getting them to browse through available choices is complex enough. Removing the price variable removes a small piece of complexity. It’s less for someone to think about as he’s browsing and trying to decide what to buy.

    It’s for the same reason that Apple considers the LACK of an FM receiver in the iPod to be a feature instead of a drawback. Adding variables makes things more complex. Keeping things simple makes them more accessible to more people. For geeks, they LIKE a million choices. Apple isn’t designing products for people like them. They’re designing products for people who want complex things to become simple. I think it’s a good choice for that reason.

  19. “So, then, why would that prevent them from pricing slow-movers at rates LOWER than 99 cents?”

    The thing is, iTunes has so many songs that 99.99% of them are “slow movers” compared to the top 100.

    I’m not sure what would be accomplished by putting a 10 cent discount on track 8 of some obscure Pat Boone record. Sales wouldn’t improve, because the price isn’t the limiting factor.

    Further, what’s the motivation behind cutting the price of “slow movers” on iTunes? The whole point of doing so with material goods is to clear out inventories. That isn’t a concern on iTunes.

  20. Julian,

    How dare you use your blog as a venue to express your views in anything other than a glossed-over, headline-news-ish, conversation-starting manner!!!

    [I think Warren’s internal transaction costs rose at too great a rate for his liking. Instead of evaluating a blog entry in several seconds, he had to actually spend several minutes reading and digesting it, thus creating a greater cost. Don’t be surprised if you lose Warren as a customer, Julian, as you have made it too costly to read H&R.]

  21. A post on Hit & Run that’s actually about economics? This can’t be right.

  22. “Further, what’s the motivation behind cutting the price of “slow movers” on iTunes? The whole point of doing so with material goods is to clear out inventories. That isn’t a concern on iTunes”

    No, clearing out inventory/storage space is only part of the motivating factor behind dropping prices for slow movers, not the “whole” point. The other motivation is to make money with something that is just sitting there. Life is not infinite, and the market has competing forces who also want to make money. So even if you have unlimited storage space, and unlimited shelf life for your inventory, it still make sense, in many instances, to drop prices. If life never ended and there were no operating costs and no competitors, maybe not—but none of those things are true.

    On the other hand, in an instance like this, it just doesn’t make sense to drop the prices on something like iTunes, which is almost a loss-leader for Apple.

  23. Julian,
    No, I didn’t make myself clear. In general I approve of the use of the “more” feature. It keeps the main page from getting cluttered.

    In this case, I thought that the extra verbiage detracted from the post. I thought it corralled and cut off avenues of discussion, and therefore should have been left off. The other comments here demonstrate that I was wrong on this score. I apologize for dismissing the value of what you wrote.

    What I do object to, is the practice of posting something at H&R before having it published elsewhere, enhanced and corrected directly from comment feedback. It’s just sour grapes I guess. Having a piece of work fact-checked and getting a couple of relevant internet links, shouldn’t deprive someone of a byline. I’m just not use to seeing the sausage made. Like I said, it irritates me a little bit. I’ll get over it.

  24. taking that article out for a test spin before it gets published somewhere

    This seems like a fine way to use HnR to me. If J. is not, J. should.

  25. Evan writes: “If life never ended and there were no operating costs and no competitors, maybe not—but none of those things are true.”

    That’d be more persuasive if the record companies didn’t maintain rights to lots of music that they’ve let go out of print because actually pressing CDs would be uneconomical due to the lack of demand, and maintaining physical inventories carries a tax liability.

    It *is* economical to put that music up on iTunes, so companies have been putting such music on iTunes where it can earn money at the $.99 price.

    Sales may be slow, but they’re earning money on formerly unproductive properties – and cutting the price by $.10 or $.15 is unlikely to boost sales, because they’re probably expecting the only sales to be to people who *really* want the music for whatever reason, or who are not sensitive to the price.

  26. It would be interesting for I-Tunes or any of the music services to go ahead and try the music industry’s desired tiered pricing structure, just to see what would happen. Personally, I would be willing to pay up to $1.50 to $2 for a song that I really wanted and couldn’t find in physical media on Amazon of Half.com.

    The record companies must be doing okay, as the price for a song (i.e. “a single”) in cyberspace doesn’t have to factor in costs for physical production of albums and discs and the labor to produce and market them, as opposed to passing off to the consumer any cost for the song to be put into a particular physical fixed format such as a CD, DVD or hard drive.

    I paid 99 cents for Yoko Ono’s Walking on Thin Ice a couple of weeks ago, yet I remember paying almost the same amount (about $1.50) for the 45 rpm record at a department store 25 years ago as a kid. And I’m sure there were a lot more physical costs to produce that plastic disc back then, than it is for Apple to encode it and send it to me through their software.

    Just as then, I’m sure the profits from the big sellers were making it possible for the low sellers to even appear in the marketplace, as I know there weren’t enough Yoko Ono record buyers to justify her continued recording contract, then or now.

    Reminds me of all my fellow dorks in college who used to complain about our Big Ten football team and how well the “jocks” were treated, even though the jocks were bringing in hundreds of millions of dollars to the university that made it possible for stupid or unpopular majors to exist and otherwise couldn’t pay for themselves (a roommate that had a girlfriend majoring in Egyptology comes to mind).

    I’ll avoid the “it’s free on Kazaa” conversation, as the last time I had that discussion it was in an intellectual property law class with a stupid college kid half my age that was complaining about the “greedy, evil record companies.”

    P.S. Yes, I like Yoko Ono. What do I know? I once got flamed by one of the staff of Reason on this board for saying that I prefered REM’s Monster to Automatic For The People, which I still think sucks …

  27. One thing you might not be considering (and I’m not sure how it affects the pricing argument) is that there’s already market competition of some sort at work; in that iTunes isn’t the only source for online music. There’s also emusic, sony connect, etc., plus file-sharing (aka “stealing”).

  28. The only problem is, it’s basically impossible for me to believe that Steve Jobs (and the army of fresh-faced genii in his employ) don’t understand those arguments perfectly well. They must’ve devoted a lot of expensive brain-hours to the question and decided monopricing was the way to go. So why might that be?

    a.) Jobs’ claim has always been that $.99 was simple for consumers

    b.) Apple doesn’t generate any substantial profits for themselves from iTunes, most of the profit goes to the content providers. Where Apple makes it’s money is off the sale of iPods. So it’s in Apple’s interest to distribute as much proprietary content as possible without regard to how profitable it is for the content providers.

  29. I once got flamed by one of the staff of Reason on this board for saying that I prefered REM’s Monster to Automatic For The People, which I still think sucks …

    that’s a pardonable sin as long as you understand that both those albums pale in comparison to their first 4 albums.

  30. I’m glad Julian uses the [more] function on some of his posts.

    thats all..

  31. Correct me if I’m wrong, but the difference in demand between a hit single and a track by an obscure Finnish folk band is effectively *zero* given the infinite supply provided by digital copies.

    So the “more popular music should be priced higher due to higher demand” argument rather falls by the wayside.

    If you want to argue supply and demand, the price should probably be zero.

  32. I find the “pay by file size” rate to be the most compelling and fair. If I am just trying a song out, I’ll buy the 96kbps version and pay .25$ If I really like it, I’ll return and pay $1.25 for the 320 kbps version. Oh, and it seems silly to me that one would pay the same rate for 21st Century Schizoid Man as for the Ramones’ Pinhead

    I find it interesting that the only site that provides this kind of service is a sketchy Russian one. If anyone is asking, I want options.

  33. rhywun – re REM albums: exactly

    As far as the post goes – I think Julian gets waaaay to verbose a lot, but I got over it.

    I don’t buy music from iTunes or steal it. Since I’m a dj, I buy vinyl. So those services don’t really have a lot of use for me. That will change when I get a cd mixer, though.

    But in general, I like to pay for something that I want. I think of it as a thank you to whomever created that thing.

  34. that’s a pardonable sin as long as you understand that both those albums pale in comparison to their first 4 albums.”

    I agree … except for Murmur. (Men on Film voice: “hated it …”) (LOL)

    I don’t buy music from iTunes or steal it. Since I’m a dj, I buy vinyl. So those services don’t really have a lot of use for me.

    I’m rediscovering vinyl too, as a lot of pre-1980s albums that I owned are still not available on I-Tunes, particularly classic jazz and R&B, or esoteric 60s rock groups that I used to dig, like The Easybeats (original albums, not compilations). Felt kinda weird bying a turntable after two decades …

  35. I think the major flaw in Markels’ argument is that he thinks people are buying the music when they pay for a track.

    They aren’t buying the music, so there’s no elasticity based on demand for the music.

    They’re making a small concession for the convenience of the service. If the price is too high, they won’t bother paying at all, they’ll go through some additional hoops and get the music free.

  36. If anyone is asking, I want options.

    Consumer choice is for markets, not cartels. You will get the options they give u and u will be satisfied.

  37. Folks, having broached this with quite a few SKU and pooter gurus I am quite convinced that the back-end simplicity carries the day for Apple.

  38. Evan –

    “That might be right, if 99 cents was just the ceiling, rather than the ceiling and floor. In other words, let’s say they DID do some market research like you presume, and found that 99 cents was the max that most would pay when downloading for free is an alternative. So, then, why would that prevent them from pricing slow-movers at rates LOWER than 99 cents?”

    I presume because Apple would like to at least break even?

  39. Evan writes: “And, to the bigger issue, yes, Apple does indeed exercise some amount of price manipulation—for example, some albums with 15+ songs only cost $9.99 if you buy the entire album. Others cost more, like $11.99, even though they don’t have more songs. Not to mention that certain songs are available only if you buy the whole album, which further distorts the pricing structure.”

    Probably because the price of buying a whole album puts it above the impulse-buy level automatically. People are more likely to engage more of their brain before buying because of the price.

  40. I guess I agree with the simplicity argument but add the observation that law of supply and demand only makes sense when the supply is limited. Logically, the price should vary depending on how many people wish to download ANYTHING, since this is the limiting factor. You’re paying for access to the library, not for a specific track.

    There are parallels: the “value menus” at fast-food joints. Logically, they might sell more hamburgers off the value menu than they do fries, but the actual cost of the food is pretty small in both cases. You’re really just paying for the counter help. They don’t sit around and count sales and argue about whether or not people would pay more for hamburgers. You’re paying them to deliver the food of your choice.

    Similarly, Apple doesn’t own the songs and doesn’t really care what you order. They are paid to deliver a file. What is in the file is none of their concern. Does the USPS charge extra for love letters?

  41. “Yet there’s a pheonomenon familiar to marketers where you can sometimes sell more of a product by raising the price, precisely because peoople do sometimes take prices as a proxy for quality.”

    We call these oft-mentioned yet unseen lil’ unicorns of economics: The Giffen and Veblen Good(s).

    http://en.wikipedia.org/wiki/Veblen_good
    http://en.wikipedia.org/wiki/Giffen_good

    Some types of premium goods (such as expensive French wines, or celebrity-endorsed perfumes) are sometimes claimed to be Giffen goods. It is claimed that lowering the price of these high status goods can decrease demand because they are no longer perceived as exclusive or high status products. However, the perceived nature of such high status goods changes significantly with a substantial price drop. This disqualifies them from being considered as Giffen goods, because the Giffen goods analysis assumes that only the consumer’s income or the relative price level changes, not the nature of the good itself. If a price change modifies consumers’ perception of the good, they should be analysed as Veblen goods. Some economists question the empirical validity of the distinction between Giffen and Veblen goods, arguing that whenever there is a substantial change in the price of a good its perceived nature also changes, since price is a large part of what constitutes a product. However the theoretical distinction between the two types of analysis remains clear; which one of them should be applied to any actual case is an empirical matter.

  42. @Julian

    Upon re-reading your post – I am flabbergasted at your brutal errors in your understanding of economics.

    People are actually going to be a lot less price elastic than you might think, especially for the niche items.

    Er…econ 101…people are not in anyway shape or form ‘price elastic’. Price elasticity is easily plugged-and-chugged for demand or supply. You are roundaboutly referring to the former.

    That is, suppose Quasi is selling a lot fewer albums than Kanye West. The normal market conclusion would be that Quasi should be priced lower to move more. But that’s not necessarily the case, because most consumers aren’t actually sitting there making the decision at the margin between Quasi and Kanye. Rather, the people who like Quasi are going to buy it whether it’s at 99 cents or 50, and even if it were 10 cents, Quasi just ain’t going to be most people’s cup of tea.

    Really? So why not price Quasi at, say, $20/download? Or *$1 million?

    Good thing you are a journalist — cuz you don’t have a career in biz.

    *Insert Dr. Evil cackle here.

  43. WARREN: “What a long blog post! Couldn’t you truncate it? In fact, as far as I’m concerned, even the word ‘truncate’ is too long. Could you shorten it to ‘trunc’?”

    JULIAN: “I’m not going to ‘trunc,’ you.”

    WARREN: (stunned speechless)

    (Inside joke.) 😉

  44. Let’s just put the “supply of online music is infinite, so under supply and demand the price should be zero or flat” argument to bed.

    Even though a single song can be downloaded a zillion times with no loss to Apple, and hence there is an “infinite” amount of that song to be distributed, there are finite amounts of two very important other things: time and storage space. Consumers do not have infinite time available to locate and download songs, and don’t want hard drives full of songs they never listen to.

    If you know exactly what you want when you go onto iTunes, then you can download particular songs pretty quickly and maximize your time. You can probably get yourself 12 diverse songs (an average album’s worth) in, say, 20 minutes. You don’t need to preview each song or anything. Your bandwidth is your only limiter.

    But let’s say you know you want “Ants Marching” by the Dave Matthews Band, but you don’t want the album version. You want a live one. And there are ten live ones to choose from. Or you want to expose yourself to some new country music and there are thousands of songs to weed through in that genre. Then what? Preview them all? Download them all?

    You don’t want to be wasting your time previewing crap (like the live “Ants Marching” track that is actually some guy’s camcorder snuck into Row 82). You don’t want to spend money on a song that you’ll never listen to again, or waste the time later purging that song from your system since you should never have downloaded the song in the first place. Here is where price differentiation becomes a tool that can help you save time. By prices being affected by what other people download, you can tell which songs were chosen by more people. You are gaining the benefit of other people previewing songs and making selections. If you see that one particular live cut of “Ants Marching” is twice as expensive as the other four, which one will you be previewing first? It’s more likely that the expensive cut is the one you’ll want. You save time because you’re less likely to preview and download songs you definitely don’t want.

    Prices are information. Some people may have a problem with placing a price on art, but we do it all the time. Contrary to what people argue, music is not fungible. I don’t want to purchase music I don’t like, and I don’t want to waste my time listening to crap. If iTunes is going to affix a particular price to each song, it might as well give us some more information so that we can save ourselves some time. It doesn’t have to mean that the price ceiling will jump up to $4 or something — I doubt the world will end for iTunes if it sold a super-popular song for $1.15. Or if it had available that hideous Whale cover of “Darlin’ Nikki” nobody ever downloads (but I happen to own on CD…Whale has other better songs) for 50 cents. Heck, they might even make more money out of it. Oh, wait, I forgot…that’s a bad thing.

  45. If iTunes is going to affix a particular price to each song, it might as well give us some more information so that we can save ourselves some time.

    James M.,

    It does. iTunes has a little multi-bar display telling you how popular each track is. The more bars that are darkened, the more often the track has been downloaded.

    WITHOUT the accompanying increase in price.

  46. …and WITHOUT the accompanying DECREASE in price, too.

    I’m still trying to figure out why everyone assumes that price variation means only higher prices.

  47. Point is: they give you a way of deciding whether the track is popular or not. Which is what you were asking them to do. The fact is that this can be accomplished by means other than a floating price.

  48. “I’m still trying to figure out why everyone assumes that price variation means only higher prices.”

    Because we have a better grasp of how real-world music labels work.

  49. James N. Markels writes:

    “Even though a single song can be downloaded a zillion times with no loss to Apple, and hence there is an “infinite” amount of that song to be distributed, there are finite amounts of two very important other things: time and storage space”

    That’s rather irrelevent. The point is, that for a GIVEN song, Apple can provide copies for every human on earth and their dog.

    Thus the supply of any given song is effectively infinite, which is much higher than the demand of even the most popular tracks, and the difference between supply and demand is far larger than the difference in demand between a hit song and a dud.

    Ergo, there should be no price difference between a hit song and a dud.

    “If iTunes is going to affix a particular price to each song, it might as well give us some more information so that we can save ourselves some time.”

    And why on Earth would you rely on the labels to provide that information? I shudder to consider the crap in your collection I assume you were a big fan of “Who Let The Dogs Out”.

    “Prices are information.”

    What, did you just take Econ 101 for the first time, or something?

    Prices are information when you’re talking about a commodity. Something like gold, or copper. The market sets those prices. The price of gold and copper are not set because gold’s music label thinks copper is going to be really hot this fall, but gold hasn’t done anything new lately and can be marked down.

    What you seem to want is for the labels to arbitrarily set the price, based on the labels’ odd claims about which music is ‘better’ or ‘more desired’.

    The fact of the matter is that labels are often wrong. Why do you think they ship so many utter bombs?

    In order for iTunes music prices to carry the information you think they should carry, the prices should be set purely by popularity on iTunes. The labels wouldn’t like *that*, either, because by god they spent a fortune promoting the new Joss Stone single, and they’re going to make a fat profit on it. If nobody’s buying it, and the price drops to $.35, the label won’t be happy at all.

    But at the end of the day, you’re like a guy who refuses to use any sense but touch. An Amish Adam Smith. There’s a wealth of information available on iTunes to help you buy ‘good’ songs, information that is far richer than just price.

    After all, if a price is low, you don’t know *why* it is low, do you? Is it low because it sucks? Or just because it is obscure? Maybe it’s a gem of a song, perfectly recorded, beautifully performed, but nobody’s heard of the performer.

    Do you just look at the low price and avoid it, assuming it must suck?

    Want to know an artist’s most popular songs? iTunes shows the artist’s most downloaded tracks. That’s them. Does that mean all the other tracks suck? No.

    Finally, James, you might want to visit the real world and note how little variation there is in CD prices. Yes, there is often a bargain bin, but the music in there is often the same music that has been in bargain bins for the last 20 years. The low price isn’t a response to the fluctuations in demand, it’s a core marketing technique for certain CDs and labels. A typical music store will have obscure midlist CDs in the racks, at full-price, while the bargain bins will consistently have classic rock staples that probably sell more units.

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