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Information economics and policy, 2016-03, Vol.34, p.58-66
Ort / Verlag
Amsterdam: Elsevier B.V
Erscheinungsjahr
2016
Quelle
PAIS Index
Beschreibungen/Notizen
•We model record companies’ pricing when consumers cannot initially observe quality.•Advertising is shown to be ineffective as a signal of quality.•Ex ante investment in expected quality makes price pooling more likely.•We argue that record companies’ high A&R expenditure constitutes such ex ante investment.
This paper proposes a possible explanation for uniform pricing in the recorded music industry, based on a pooling equilibrium across different quality types. We show that an ex ante ability to invest in the probability of success – which we identify with record companies’ artists and repertoire (A&R) expenditures – makes such a pooling equilibrium more likely.