Hoping to turn ‘supply and demand’ economics on its head, at the request of the major record labels Apple has introduced ‘variable pricing’ to the iTunes Store.
True to supply-and-demand economics, the price of music downloads will be geared to the artist’s popularity. Releases from new artists would receive the lower pricing, while tracks from popular acts would get slapped with the higher rate. Even classics, such as Bruce Springsteen’s “Born in the USA,” could retail for the higher price. Most of the 10 million songs in the iTunes catalog are expected to remain at 99 cents.
Except, the new pricing model has nothing to do with “supply and demand” economics, which states:
- The more customers want to buy something, assuming a constant supply, the more the price will go up, costing you more dollars, pounds, yen, or whatever.
- If the supply cannot meet the demand for an item, the price will go up until manufacturers can make enough of the item to meet the demand.
- If the supply is too great for the demand for an item, the price will go down until the manufacturers can get rid of their inventory and the supply equals the demand.
Sure, tracks from the most popular acts are in greater demand, but supply isn’t constant or scarce, so there’s no reason for the price to go up. Instead, supply in the digital domain is infinite, which should in fact drive the price down, theoretically to the prize of zero (give and take a little to cover server and bandwidth costs).
As Techdirt concludes: “The actual price [on iTunes] is based on an artificially limited supply and a made up demand” – the aim being to squeeze more cash out of consumers for the minority of music they do pay for rather than reducing prices in order to grow the overall pie.
Or to quote industry commentator Bob Lefsetz, “the key isn’t to get them to pay more for what they do buy, but to get them to pay for what they’ve stolen.” To do otherwise is just plain stupid.