Why are all songs the same price on iTunes?
99 cents, but the deals expire in two months. Apple insists on keeping a single price across the board. Why might this be? Why might the retailer care more about price predictability than the wholesalers?
1. The confusion and resentment costs of different prices might be blamed on Apple. But surely we see different prices in many other retail arenas.
2. Perhaps Apple is solving a status game problem. If everyone else is selling for 99 cents and your song sells for $1.20, yours looks special. Music companies might set prices too high, not taking into account the lower demand for iTunes, and music, more generally.
3. Could Apple be enforcing music company price collusion, while receiving implicit kickbacks in the rights agreements? This would require the complainers to be in the minority.
4. Apple makes much of its money on hardware, especially iPods. Low song prices cross-subsidize the hardware, to some extent at the expense of music companies. That said, some music companies wish to charge lower not higher prices.
5. Hit songs are kept at artifically low prices to discourage people from moving into the world of illegal downloads.
6. Price is a signal of quality and Apple doesn't want to admit it carries "lemon" songs. But won't demand for the hits go up?
7. Uniform pricing is a precommitment strategy for a durable goods monopoly game.
We must distinguish two aspects of the problem. First, Apple wishes to control retail prices. Second, Apple wishes to make all retail prices the same. Which of these features is more important for understanding the problem?
Here is a proposal for determining prices by auction; no way will we see it. Here are rumors that the uniform pricing will end. Note that the Japanese store already has two tiers of prices. How about keeping the price the same, but bundling hot songs with less desirable ones? Way back when, we used to call these "record albums"...
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