Review of Industrial Organization 17: 465–470, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
A Note on Elasticity and Price Dispersions in the
Music Recording Industry
FRANKLIN G. MIXON, JR.
Department of Economics and International Business, The University of Southern Mississippi, Box
5072, USM Station Hattiesburg, MS 39406-5072, U.S.A.
RAND W. RESSLER
Department of Economics and Finance, University of Louisiana, Lafayette, LA 70504, U.S.A.
Abstract. The present note examines price dispersions in the music recording industry between new
release and mid-line (older) recordings. The model employs the framework developed within the
industrial economics literature and provides empirical results suggesting that new release prices are
lower than those of mid-level recordings. This result follows from differing buyer characteristics and
varying levels of close substitutes, leading to higher demand elasticities for new release recordings.
Finally, the theoretical expectations should hold in the presence of either signiﬁcant scale economies
or modest minimum efﬁcient scales of production.
Keywords: Elasticity, music recording industry, oligopoly, price dispersions.
JEL Codes: L13 and L82.
In a recent study, Alexander (1994) points out that market concentration in the mu-
sic recording industry has, over time (1890–present), produced the shape of a “W”.
In the past, the industry has been characterized by new production technologies,
which have led to (1) waves of entry into the industry by new ﬁrms, and (2) lower
production costs and a relatively modest minimum efﬁcient scale. Both of these
phenomena have produced lower levels of industry concentration as they occurred.
However, the industry has recently emerged from a wave of horizontal integration
(mergers), resulting in higher levels of concentration relative to past periods. Today,
as Alexander suggests (1994), six large ﬁrms dominate the industry: Time/Warner
(TW), Sony/CBS (SC), Thorn/EMS, Philips/Polygram (PP), Bertelsmann Music
Group (BMG), and Matsushita.
The Alexander (1994) study examines the impact of concentration on release
behavior by music companies. The purpose of the present note is to offer a theor-
The authors thank two anonymous referees of this journal and Troy Gibson for helpful
comments. The usual caveat applies.