Conduct in the Industry Evidence

Conduct Pricing Advertising Research & Development Coordination vs. Rivalry

Price Index for Recorded Music 2005 = 100

Price and Quantity Indices

Waldfogel’s Quality Estimates

Turnover on Billboard 200 Album Chart

Indie Albums in Billboard 200 (Waldfogel)

Cooperation vs. Rivalry – the major record labels allegedly adopted minimum advertised pricing policies, a practice that ended with consent agreements with the Federal Trade Commission in May – The labels threatened to withhold promotional payments from retailers who failed to adhere to minimum CD prices. – The FTC found this equivalent to illegal resale price maintenance under the antitrust laws. – The labels’ intent, however, may have been to maintain variety by preserving large-assortment specialty retailers in the face of competition from limited-assortment discounters such as Wal-Mart and Target.

Entry Deterring Strategies In connection with Universal’s acquisition of EMI, consumer groups alleged that the Big 4 were trying to deter entry into the online music streaming market. The labels demanded large annual upfront payments from Pandora, Spotify, etc. in lieu of royalties on titles in their catalogs until royalties exceeded the upfront payments. If royalties never exceed the upfront payment, the labels keep the full payment amount. The size of the payments ($150 million) were alleged to prevent these services from making any profit. This may have been an efficient form of vertical pricing, however, that avoids “double mark-ups”.

References Waldfogel, Joel. 2011(b). “Copyright protection, technological change, and the quality of new products: Evidence from recorded music since Napster.” NBER Working Paper 17503, Marvel, Howard P. and James Peck. (2008). “Inventory turnover and product variety.” The Journal of Law and Economics, 51(3), versal-emi-merger_n_ html versal-emi-merger_n_ html