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Market for Experience Goods

Market for Experience Goods. Economic Foundations for Entertainment and Media. Special Features of the Demand for Experience Goods. “The entire planet can get along nicely now with maybe a dozen champion performers in each area of human giftedness.” (Kurt Vonnegut, Bluebeard , 1987.).

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Market for Experience Goods

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  1. Market for Experience Goods

  2. Economic Foundations for Entertainment and Media Special Features of the Demand for Experience Goods

  3. “The entire planet can get along nicely now with maybe a dozen champion performers in each area of human giftedness.” (Kurt Vonnegut, Bluebeard, 1987.) Winner Take All Markets The Winner-Take-All Society, Frank, R., Cook, P., Penguin, 1995. Sherwin Rosen, “The Economics of Superstars,” AER, 1981.

  4. A Winner Take All Market Of the top 50 best sellers of all types in 1990-1998, 43 were novels and 41 of them were by John Grisham, Stephen King, Danielle Steel, Michael Crichton, Tom Clancy, and Mary Higgins Clark. Together, they sold just under 200,000,000 books. Any others? James Patterson: 20,000,000 J.K.Rowling 400,000,000+ Danielle Steel 800,000,000+

  5. Winner Take All Markets • A characteristic of winner take all markets: Barely perceptible quality difference spells the difference between success and failure. • (Early) Tiger Woods • The one stroke difference between #1 and #40 in golf • Opera – Pavarotti(?) • The iPod • Google? • YouTube? • Others?

  6. Elements of Winner Take All Markets • Network externalities (books), cascades and “tipping” in markets • First mover/success (Windows plug-ins, AOL Instant Messenger, iPod, Google? Facebook) • Production cloning and economies of scale • Risk avoidance by consumers • Consumers’ desire to accumulate common social capital

  7. Winner Take All Markets: Bigger Markets; Winners have larger shares

  8. A Theory of Winner Take All: Rosen on Superstars • Empirical regularity: extremely skewed distribution of income in talent based industries • Small differences in quality translate to large skewness in the distributions of success • Underlying conditions of demand and supply combine to produce this result.

  9. Alan Krueger: “Rockonomics”

  10. Winners Take All In 2002?

  11. Winners Still Taking All In 2008

  12. And In 2011

  13. Total 2013 touring revenues for the top 25 earners: $2,155M. The entire market, about $2.5B - $3.0B Total Royalties: more.

  14. Is it a price effect or quantity effect? Mainly quantity. (2013) Ticket price is not related to the popularity of the act. (2008) Ticket price is somewhat related to the scale of the event.. Tickets (M)

  15. Changing Demographic Effects Sales of concert tickets, a vital measurement of the health of the music industry, returned to their former strength in 2012 after two slow years, with Madonna and Bruce Springsteen leading the most popular tours. The results, however, point to two trends that have long worried critics of the business: rising prices and the predominance of aging superstars whose fans care little about their new material. The top 100 tours in North America had $2.5 billion in gross ticket sales last year, nearly equal to their peak three years ago, according to Pollstar, a trade publication. Madonna was the biggest attraction, with $134 million in sales, followed by Cirque du Soleil’s tribute to Michael Jackson, “The Immortal,” which had $113 million; Mr. Springsteen was No. 3 with $105 million. Madonna also topped Pollstar’s worldwide chart, with $296 million in gross sales, followed by Mr. Springsteen with $210 million. These numbers are welcome for the concert business, which faltered in 2010 after more than a decade of swift growth, for reasons variously attributed to the recession, weak lineups and overpriced tickets. It had only a slight rebound in 2011. Yet fewer tickets were being sold at higher prices. Fans bought 36.7 million tickets for the Top 100 tours in North America last year, still down from 40.5 million in 2009. Last year, the cost of an average ticket rose to a record $68.76. The Rolling Stones’ handful of 50th anniversary shows was the most expensive, at an average of $519. And while fans flocked to see Madonna and Mr. Springsteen in concert, they largely avoided their new albums. Madonna’s “MDNA,” released last year, sold 527,000 copies, according to Nielsen SoundScan; as many as a third of those were given away with the purchase of a ticket, according to estimates. Mr. Springsteen’s “Wrecking Ball,” also released last year, sold 490,000 copies.

  16. A Rational Addiction Theory • Rational addiction – a dynamic model of consumption Consumption might be for learning purposes. E.g., I will go to several operas to learn how to enjoy opera. • Acquired taste such as opera, renaissance art, hip hop music • Accumulated expertise – a capital stock • This implies a decreasing demand elasticity as accumulated consumption increases (an ‘addiction’ develops).

  17. A Rational Addiction Theory

  18. Implication of Rational Addiction

  19. Implications of Rational Addiction Theory:This applies to certain kinds of experiences. • Investment in promotion increases demand directly – part of the capital stock is awareness of the good. • Increased demand becomes reduced elasticity – greater profitability beyond increased demand.

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