Arnold Kling

A Trend in Music Pricing?

Arnold Kling, Great Questions of Economics
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Alan B. Krueger takes note of the sharp rise in the price of tickets for music concerts, and he examines various possible explanations.

I suspect the main reason is that the growing ability of fans to download music free from the Web legally or illegally has cut into artists' revenues. Millions of people have downloaded music from Napster, Morpheus and KaZaA and bought fewer records as a result. Music sales are plummeting, putting downward pressure on artists' royalties.

In this environment, concerts take on a different meaning for artists and their managers. In pre-Napster days, concert prices were kept below their market rate to help sell albums, a complementary good. Now concert prices are set with an eye toward maximizing concert revenue.

Many economists believe that the music industry will have to change its revenue model, and that artists may grow to depend more on live concerts. However, I am skeptical that this is already happening to the extent that it explains the surge in concert prices. Ticket prices for professional basketball games also have shot up, and there is no Napster effect in basketball. I suspect that certain forms of popular entertainment are luxury goods, and the big increase in wealth in the late 1990's is what facilitated the rise in ticket prices.

Discussion Question. If popular entertainment is a luxury good, will the drop in stock market wealth help to curb ticket price increases?

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