fofp at HOLYROOD.ED.AC.UK
Tue Apr 1 05:39:44 EST 2003
Doug Pearson writes:
> >In the case of items such as CD's the buyers generally know the rough
> >resale price of a CD which is modified by the band's popularity and
> >sometimes by rarity of the release.
> >The retailer can't charge any more for an item than the consumer is
> >willing to pay and what the consumer is willing to pay will depend in
> >part on what the consumer calculates that they can recover on resale of
> >the item.
> >That makes for a top price. Obviously effects like competition from
> >other retailers might force that price lower for any particular
> >Not that these are the only factors affecting pricing, but the resale
> >value is a factor which affects price.
> This explains why some secondhand CD's cost more than others, but it
> doesn't explain how, as you say, "if the band are on a percentage royalty
> then a healthy secondhand market does add to their income". I think THAT
> is the statement that Jon is confused about - I certainly am!
OK, suppose the very second you bought any CD that its secondhand value
went to zero price. That is that there was no source through which you
could obtain any money for resale of the item. The theory goes that the
effect would be that the maximum price you would be willing to pay for
the new item would drop to some extent. Basically people are willing to
pay a certain amount of notional rent on an item plus whatever they
estimate it's worth on resale. Therefore if an item has some resale
value then the price they're willing to pay for new rises. To the extent
that this raises the royalty of the band and to the extent that
competition permits retailers to reach towards this price, the royalty
to the band increases.
Further than that, I guess you'll have to take it up with the theorists.
It makes sense to me, but then I like to read about economics so my
mileage might clearly vary.
> The statement doesn't make any sense to me, since bands don't get any
> royalty percentages from secondhand sales.
Precisely so, but this doesn't mean that the secondhand market doesn't
lead to income for the band.
> If anything, it seems to me
> that a healthy secondhand market would *detract* from a band's income,
> since a band's fans have a finite amount of funds to spend on the band's
People only have a finite amount of funds to spend on anything. What
retailers and advertisers try to do is change their preferences as to
what they'll spend those funds on. Sure, someone might buy two
secondhand CD's instead of a new one, and the band might have gained
more from the new sale. However someone who might not pay full price
might buy secondhand and thus raise the price of the new sale for the
next guy. In fact if kollectors were sure they'd never sell and didn't
want to leave a Hawkwind collection as a bequest, it'd be in their
interest to wipe out the secondhand market and cut the new sale price.
> Just as you describe "basic piracy", secondhand sales do not
> help a band economically "unless it serves to bring new buyers into the
I disagree with this on the basis of the above argument.
> Also (as an aside), I seriously doubt that very many people buy new CD's
> (unlike new cars) with any consideration as to what the resale value might
They might not have this conciously foremost in their mind, but I
contend that it's part of the background calculation.
Suppose CD's were like nuclear waste and that if someone decided to get
rid of one it would cost them a lot of money (I.e there's an even lower
resale price than zero). Do you suppose that this wouldn't affect sales?
On a less extreme scale we have domestic equipment such as fridges which
cost cash to remove (and they're talking about it here for old
computers). Wouldn't this affect fridge sales to at least the extent
that a fridge for the bedroom might be skipped?
> (the notable exception being pre-fab "collectors' items", limited
> editions, and the like). If that were the case, nobody would buy top-40
> releases, because those will all necessarily have lower resale values due
> to excessive supply.
Also more people interested in buying them later simply because they're
more known. Most of the record companies love their back catalogues of
ppular artists and certainly most record shops near me would give some
cash for a David Bowie CD that they won't for an Ian Boddy one. Ian
Boddy is much rarer but the dude figures that more people know Bowie and
he's likely to have to give it room on the shelves for a lot less time.
> I wish I could cite actual papers, but some of the
> most interesting recent findings in economics have been studies showing
> that consumers (including consumers of stocks & securities) do *not* behave
> in the "rational" manner that the current supposed laws of economics were
> presumed to dictate.
I've no argument with that. Nobody however is suggesting that consumers
are irrational either. When consumers behave other than theory predicts
then that means to most economists that there are some interesting
factors that the theory is missing. As you've also pointed out, it can't
be a perfect information market either since nobody can know what
someone will pay secondhand and how soon. The secondhand record shop
dudes make income or not byt making their best guess and consumers
conciously or unconcisouly do the same when estimating secondhand value.
Even on rare items I make this calculation all the time. I just paid 64
quid for the UFO Silver Machine single which was a promo. Do I believe
that I could get 64 quid back if I resold? Possibly, but unlikely. I
believe I paid a premium just to ensure winning the Ebay auction but not
so much of a premium that the difference between what I paid and what
I'd get is too high a notional rent for me to hold the item in a
Of course technically, due to Ebay's bidding system, I only paid one
Pound more than the next guy's bid, but I have to guarantee the next guy
will bid next time.
The trick about economics is that it's about people's *real* preferences
rather than what they might claim to an opinion pollster or do in a vote
that costs them nothing because they'll get it back again at the next
election. When people have to pass over the magic chits in the knowledge
that they'll never get them back to spend on the other option, there's
no room to lie. What they buy reveals what they actually want and what
precisely they're prepared to sacrifice as an option to get it. In that
people lie routinely about damn nnear everything else, I think we should
look at the poor economists' crystal balls as half full, and
impressively so, rather than half empty.
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