Title Some economics of the classical music record industry

Author(s) Choi, Ka-fai;

Citation
Issue Date 2005
URL http://hdl.handle.net/10722/40987
Rights
The author retains all proprietary rights, (such as patent
rights) and the right to use in future works.
Some Economics of the Classical Music
Record Industry
Ph.D Thesis
Abstract of thesis entitled
Some Economics of the Classical Music Record Industry
Submitted by
Choi, Ka Fai
for the degree of Doctor of Philosophy
at The University of Hong Kong
in October 2005
This thesis presents two models to explain the behavior of classical music record produc-
ers, based on the premise that the tastes for the art and for the artists are endogenous.
The endogeneities considered stem from (i) the preference reinforcement of the music con-
sumption and (ii) the social interactions in listeners demands for artists performances.
These demand features are modeled, respectively, by specifying the listeners utility as a
function of their consumption capital and the artists reputation capital.
The supply-side implications derived are concerned with the decisions on record prices
and the type of music to produce. The rationales behind the associations between these
decisions and the demand features described above are: feature (i) motivates record
producers to supply good buys to boost the consumption, thereby building up the
consumers taste; and feature (ii) induces artists to play early in the career the music that
would expose them to the largest possible number of audiences to establish a reputation.
Based on these, testable implications on how record producers behave are derived.
The model on record pricing shows that prices can dier even among horizontally
dierentiated records. In particular, it predicts that (a) larger rms will supply their
products more cheaply because they are more capable of aecting young consumers con-
sumption level (and therefore their future music capital stock) and reaping the investment
return; (b) records of mainstream music will be cheaper because this type of music is what
young consumers usually begin with; and (c) re-issues will be cheaper as the market of
old consumers for them is likely to have been saturated, given their having been marketed
for a long time, so old consumers will not be induced to substitute immensely away from
the more expensive rst releases.
The model on the choice of which type of music to produce treats the career decision
as a dynamic problem. At a given career stage, the artist has to consider the trade-o
between the pecuniary and non-pecuniary returns because the type of music that brings
him more audiences and a better reputation may not coincide with his artistic pursuit.
Interestingly, as his career unfolds, the non-pecuniary motive tends to dominate because
the incentive to invest in reputation would diminish over time. A mid-career switch may
occur. The model predicts that (a) switching from the fringe to the mainstream market
will not occur; (b) switching from the mainstream to the fringe market will happen so
long as the latter is not too small; (c) talented artists are more likely to begin their careers
with performing mainstream works; and (d) artists switching from the mainstream to the
fringe market are more talented than those staying put.
The theoretical implications stated above are intimately connected with the develop-
ments of record companies businesses and artists careers. Data on record prices and
recording careers are collected to examine their empirical validity. The results basically
support the theoretical implications.
Some Economics of the Classical Music
Record Industry
Choi, Ka Fai
A thesis submitted in partial fullment of the requirements
for the degree of Doctor of Philosophy at The University of Hong Kong
October 2005
********** To Erica **********
i
Declaration
I declare that this thesis represents my own work, except where due acknowl-
edgement is made, and that it has not been previously included in a thesis,
dissertation or report submitted to this University or to any institution for a
degree, diploma or other qualications.
Signed
ii
Acknowledgements
I am grateful to my supervisors Dr. William Chan and Prof. Wing Suen for
their guidance and intellectual support. This thesis could not have been com-
pleted without their suggestions and criticisms. I thank Dr. Stephen Chiu,
Dr. James Vere and Prof. Pascal Courty for their helpful comments, the sem-
inar participants at the University of Hong Kong, the Hong Kong Institute of
Economics and Business Strategy for nancial support, Mr. Kwok-leung Lo
for his assistance in preparing the data and my family and friends for their
spiritual support.
iii
Contents
Dedication i
Declaration ii
Acknowledgements iii
1 Introduction 1
I Cultivating Consumers Taste: The Supply of Addictive
Bargains 9
2 A Model of Record Prices 10
2.1 The Theoretical Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1.1 Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.2 Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.2 Theoretical Implications on Record Prices . . . . . . . . . . . . . . . . . 20
2.2.1 The Impact of the Rate of Consumption Capital Accumulation . . 20
2.2.2 The Eect of Popularity Distribution . . . . . . . . . . . . . . . . 23
2.2.3 The Eect of Size Distribution . . . . . . . . . . . . . . . . . . . . 26
2.2.4 Price Dierence between New Release and Re-issue . . . . . . . . 27
2.3 Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3 The Sample of Record Prices 33
3.1 Constituents of the Sample . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.2 The Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
iv
3.2.1 Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.2.2 Product Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.2.3 Music Popularity . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.2.4 Size of the Record Company . . . . . . . . . . . . . . . . . . . . . 40
3.2.5 New Release and Re-issue . . . . . . . . . . . . . . . . . . . . . . 41
3.3 Some General Features of the Data . . . . . . . . . . . . . . . . . . . . . 42
3.4 Some Features of the Industry . . . . . . . . . . . . . . . . . . . . . . . . 44
4 The Empirical Results on the Characteristics of Record Prices 49
4.1 The Empirical Specications . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.2 The Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
II Investing in Reputation: Strategic Choices in Career Build-
ing 63
5 The Career Building Model 64
5.1 The Theoretical Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.2 Implications on Career Choices . . . . . . . . . . . . . . . . . . . . . . . 70
6 The Sample of Recording Careers 74
6.1 The Sampled Artists and Their Recording Careers . . . . . . . . . . . . . 74
6.2 The Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
6.2.1 Pianists Talent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
6.2.2 Popularity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
7 The Empirical Results on Career Building Behavior 83
7.1 Career Period and Repertoire Type . . . . . . . . . . . . . . . . . . . . . 83
7.2 The Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
7.2.1 The Empirical Results on Proposition 5.1 . . . . . . . . . . . . . . 86
7.2.2 The Empirical Results on Proposition 5.2 . . . . . . . . . . . . . . 88
7.2.3 The Empirical Results on Proposition 5.3 . . . . . . . . . . . . . . 90
7.2.4 The Empirical Results on Proposition 5.4 . . . . . . . . . . . . . . 92
v
8 Conclusions 96
A The Piano Competitions 101
References 107
vi
List of Tables
3.1 Prices of the Circulating Records . . . . . . . . . . . . . . . . . . . . . . 36
3.2 The 20 Most Talented Pianists in the Sample . . . . . . . . . . . . . . . 38
3.3 The 15 Most Popular Composers . . . . . . . . . . . . . . . . . . . . . . 40
3.4 The 10 Most Sizable Record Companies . . . . . . . . . . . . . . . . . . 41
3.5 Prices of the Sampled Records . . . . . . . . . . . . . . . . . . . . . . . . 42
3.6 Some Descriptive Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.7 Some Bivariate Relationships . . . . . . . . . . . . . . . . . . . . . . . . 45
3.8 Some Characteristics of Re-issues . . . . . . . . . . . . . . . . . . . . . . 47
4.1 Record Price and Quality: Ordered Logit Estimates . . . . . . . . . . . . 51
4.2 The Estimated Marginal Eects of Quality . . . . . . . . . . . . . . . . . 52
4.3 Record Price and Quality: Binomial Logit Estimates . . . . . . . . . . . 53
4.4 Characteristics of Record Prices: Ordered Logit Estimates . . . . . . . . 54
4.5 The Estimated Marginal Eects in the Ordered Logit (Whole Sample) . . 56
4.6 The Estimated Marginal Eects in the Ordered Logit (Sub-sample) . . . 57
4.7 Characteristics of Record Prices: Binominal Logit Estimates . . . . . . . 59
4.8 The Estimated Marginal Eects in the Binominal Logit . . . . . . . . . . 60
4.9 The Interaction between Company Size and Issuance Type . . . . . . . . 61
6.1 Prices of the Sampled Products . . . . . . . . . . . . . . . . . . . . . . . 78
6.2 Numbers of High-skilled Sampled Pianists . . . . . . . . . . . . . . . . . 79
6.3 Correlations of the Talent Dummies . . . . . . . . . . . . . . . . . . . . . 80
6.4 The 34 Most Popular Composers . . . . . . . . . . . . . . . . . . . . . . 82
7.1 Numbers of Talented Established Pianists in the Sample . . . . . . . . . 85
vii
7.2 Some General Career Features of the Established Sampled Pianists . . . 85
7.3 Prices of the Products of the 242 Established Pianists . . . . . . . . . . . 86
7.4 Sizes of the Four Career Groups . . . . . . . . . . . . . . . . . . . . . . . 86
7.5 Likelihoods of the Two Types of Career Switch . . . . . . . . . . . . . . 87
7.6 The 2
nd
-period Fringe Products of the A-B and B-B Pianists . . . . . . . 89
7.7 The Match between Repertoires and Talents in Artists Early Career . . 91
7.8 Talents of the A-A and the A-B Pianists . . . . . . . . . . . . . . . . . . 93
7.9 Switch to Market B and Talent (Specications (1)-(2)) . . . . . . . . . . 94
7.10 Switch to Market B and Talent (Specications (3)-(4)) . . . . . . . . . . 95
viii
List of Figures
3.1 Distribution of Talents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.2 No. of Discs Supplied and Talent . . . . . . . . . . . . . . . . . . . . . . 46
6.1 Numbers of Products of the Sampled Pianists . . . . . . . . . . . . . . . 77
6.2 Biographical Lengths of the 39 Sampled Pianists in the New Grove . . . 80
ix
Chapter 1
Introduction
Economic analysis of art has received a growing interest in the literature, as conveyed
by the forthcoming of the Handbook of the Economics of Art and Culture in Elseviers
renowned Handbook in Economics series. It seemingly is an area outside the territory
of economics because art pursuers are widely believed to be not that money-minded and
passion can easily override rationality. However, the pioneering work of Baumol and
Bowen (1966) demonstrated that producers and consumers of arts behave similarly to
those in other markets.
Later works further testify the applicability of standard economic tools. Heilbrun
and Gray (2001) and Scherer (2004) exemplify. The former work investigated, along
with other topics, why prices of paintings vary drastically over time and across artists;
the latter studied why most Baroque composers were employed by noble courts or church
whereas most of their romantic-period successors were freelance artists in the marketplace.
Emphases of these works reect the essentiality of price determination and career decisions
in economic analysis. This thesis, too, is occupied with similar issues, but in the context
of the classical music record industry.
The two major yet dependent production units in this industry obviously are record
companies and artists. The success of either side generally would transmit to the other.
We may therefore interpret record companies as comprising artists or artists as constitut-
ing record companies, as the precise relationship between them is not the concern here.
Whichever the interpretation, the decisions on what kind of music to produce and how
the records are priced are crucial to these production units. The hypothesis that this
1
thesis puts forth is that such decisions are intimately connected with building up the
consumer base. By studying them, we can understand more about the developments of
dierent artists careers and the marketing strategies of dierent record companies.
Certainly, features that are peculiar to art consumption should not be ignored in such
an analysis. McCain (1981) and Throsby (1994) regarded the dependence of taste for
the arts on the past consumption as one. In the consumption of performing arts, image
and reputation of the artists are important also. This is acknowledged by Krueger (2005)
in his analysis of ticket prices of rock concerts. These features apply to classical music
consumption as well and their implications are not conned to demand behavior only, as
demonstrated by the analysis of Adler (1985) on how the force of social interactions may
give rise to the superstar phenomenon appearing in dierent arts and recreations. Yet
a further step should be to study how producers would behave when such consumption
features are taken into account by them.
In standard theoretical treatment of addictions and social interactions, outcomes are
accidental and therefore not very much subject to producers decision. In Becker and
Murphy (1988), equilibrium consumption of harmfully addictive goods is featured by
instability to correspond to the bimodal behavior that is usually observed in such con-
sumption. The network eect of social interactions modeled by Adler (1985) implies an
instability of the realized outcome on who are superstars.
1
Yet this thesis attempts to
show that there is room for record companies to addict the consumers and performing
artists to strategically build up their careers in regard to the peculiar consumption fea-
tures highlighted above. Let us proceed by rst describing some stylized facts about
record producers behavior and then discussing how they relate to these consumption
features.
It can be observed that records of the very prominent artists do not necessarily com-
mand higher prices. The relationship between price and artistic quality is even found to
be negative for the records in our sample, which is in sharp contrast with the common
notion that only mediocre products would be cheaply oered.
2
Indeed, while there are
many full-priced good records, good buys or bargain products are ubiquitous in the record
1
More examples can be found in Becker and Murphy (2000).
2
Details are given in Chapter 4.
2
market. To name a few, great pianists such as Vladimir Horowitz and Sviatoslav Richter
and great violinists such as Yehudi Menuhin and David Oistrakh also have numerous
records residing in the mid-price catalogue.
3
Also of interest is the fact that the same record usually experiences substantial price
reduction when it is re-issued. The many good records included in the Collectors Edition
of Deutsche Grammophon, the Great Recordings of the Century of EMI, the Legends
of Decca and many other unnamed series under various labels indicate that the good
buys are very often earlier recordings and re-issues. On the other hand, records of the
more recent distinguished musicians such as Yevgeny Kissin and Anne-Sophie Mutter
are mostly full-priced rst releases.
4
This evidence suggests that the supply of bargain
records may be driven by some dynamic considerations.
5
Similar observations also prevail in the publication of academic books. For example,
Routledge Publishing has recently re-issued many famous works, especially in the area
of philosophy, in its Routledge Classics series at prices substantially lower than the other
works of the same authors. Interestingly, this kind of practice also appears in books
written by authors holding opposite views and issued by dierent publishers, such as
Keynes General Theory and Hayeks The Road to Serfdom.
Many novels and autobiographies also share the feature that their rst issues are
usually much more expensive than their later editions by an extent that can hardly be
justied merely by the accompanying format change from hardback to paperback. This
is usually interpreted as an intertemporal price discrimination, but the dierence in the
3
Of course, records of the less-talented artists compensated by a lower price are not lacking in, for
example, the catalogues of HMV Classics and Naxos.
4
Yet their cheaper records are also likely to be re-issues. For example, Murray Perahia has his early
recordings on Mozarts piano concertos re-issued as budget-price records, but his more recent recordings
of Bach, Schubert, Chopin, etc., are full-priced rst releases, with all of these co-existing in the catalogue
of Sony Classical.
5
Music taped in the distant past would inevitably be mixed with undesirable noise because the
recording technology was still primitive. Though the bargain products are usually re-issues, they are not
necessarily recorded in that period. In addition, with the advancement of digital re-mastering technology,
many old recordings have acceptable sonic qualities. The price dispersion that we concern is therefore
not fully justied by sonic-quality dierence.
3
nature of the re-issuing practices renders the same interpretation inapplicable to the
music industry.
6
For classical music records or classic academic works, re-issuing will not
take place in one or two years, unlike J. K. Rowlings Harry Potter and Hillary Clintons
Living History. For example, Vladimir Horowitzs numerous recordings rst issued in
the 1980s by Deutsche Grammophon were re-issued only in 2003 in its Collectors Edition
series. Such a lengthy time lag certainly would render any attempt to wait for a lower
price futile and the argument of separating the impatient consumers from the patient
ones largely irrelevant.
Dynamic change characterizes not only the pricing of records, but also the kind of
music that artists make. The fact that the most prominent classical musicians would
usually launch their recording careers with the standard repertoires is hardly deniable.
Yet as their careers developed and reputation established, some of them may diversify into
the fringe or special-interest repertoires. For example, while the earlier recordings of Yo
Yo Ma are mostly of essential cello works such as the cello concertos of Haydn, Dvorak,
etc., many of his later recordings are of less familiar repertoires. On the other hand,
young exponents of fringe music are generally less talented and those started in the fringe
market are seldom able to re-establish their careers in the mainstream market. These
observations indicate that the match between artists and repertoires is also governed by
some dynamic considerations, though not necessarily the same as those governing the
pricing of records.
In academic professions, similar career patterns are also evident. For example, in
the economics discipline, areas of general interests would have a higher concentration of
talents than areas of narrow interests, despite the disagreement as to what precisely those
areas are. In addition, Nobel laureates often can shed light on topics outside their original
areas of expertise, while established authorities in areas of restrictive interest seldom can
reach their previous level of achievement by shifting to the mainstreams.
6
As pointed out by Stokey (1979), such a pricing strategy is viable only when it does not at the same
time induce the high-value users to wait, possibly because they are less patient. On the other hand,
Lansberger and Meilijson (1985) demonstrated that if rm is more patient than consumers, they will not
wait but will make the purchase once the prevailing price is below their valuations, since the required
waiting time will be set longer than what the consumers can tolerate and is expected by them to be so.
4
As mentioned earlier, the above phenomena on record prices and career choices are
closely related to the consumption side. Those consumption features that are considered
to be relevant can also be stated in terms of what may be called social economics and
the household production approach. In producing a household commodity, apart from
the purchased inputs and time input, the consumers household productivity matters as
well. Analogous to on-the-job training in rms, in some cases household productivity
as represented by consumption capital can be enhanced by the consumption itself
because it is a means to accumulate relevant knowledge and experience. Classical music
appreciation is an example (see Stigler and Becker, 1977 and Throsby, 1994). In this
case, the consumption capital depends, among other things, on the listeners knowledge
on music, composers and performers. Past exposure is certainly an important source of
such knowledge acquisition.
Another relevant consumption feature is that the force of social interactions is at
work.
7
Which piece or which performer a consumer would choose to listen is very much
aected by the choices made by others.
8
In other words, apart from the music itself,
people also derive utility from the artists reputation or the number of people listening
to him. This social-interaction factor may even give rise to the social market for fashion,
great masters (see Becker and Murphy, 2000), and the superstar phenomenon in many
activities including classical music production (see Adler, 1985).
9
Given these consumption features, record producers would have an incentive to build
up consumers music capital and artists reputation capital, since these capital stocks
govern the sizes of the future demands that record companies and artists will face.
10
The
questions are how they might achieve that and what are the associated sacrices. The
7
See Becker (1974) for an exposition of social interactions.
8
This probably is due to the factor as highlighted by Adler (1985) that listeners also derive utility
from discussing and sharing ideas with others about the music.
9
Rosen (1981) oers another explanation of the superstar phenomenon. He suggests that talented
workers can better overcome the congestion problem in supplying a product that exhibits public good
features and is capacity-constrained, thereby earning disproportionately more income.
10
The conditions underlying the consumption growth eected by consumption capital accumulation
are assumed to hold (see for example Spinnewyn, 1980 and Boyer, 1980).
5
emphases placed by this thesis are on the pricing of records and on the type of music to
produce.
Oering bargain products, which obviously is costly, helps induce a larger current
consumption of classical music, hence a larger music capital. Nevertheless, if only those
consumers who will soon leave the market are attracted, the investment will not be very
lucrative. It is therefore essential for record companies to set a lower price only for
products that have a high concentration of consumers who will stay. Consumers who
have already been in the market for a long time are more likely to leave soon in the sense
that future purchases from them are few. Given that the compact disc (CD) is durable,
their past exposure makes them less interested in products that have been marketed for a
long time, as most of these items are in their collections already. Thus, record companies
would set a lower price for re-issues than for new items, giving rise to a declining temporal
price pattern mentioned earlier.
11
On the type of music to produce, the decision hinges upon the fact that a signicant
part of the return to performers on making music stems from their passion for the art
and is therefore non-pecuniary. Yet the musical pieces that the public like most may not
coincide with the artists, so there may exist a trade-o between the pecuniary return
and the on-the-job consumption in deciding which kind of music to perform.
12
A larger
current demand will benet the artist by bringing him not only a higher current earning,
but also a larger reputation capital that will increase the future earnings. Although
mainstream works have a larger market, the competition among artists should be more
intense. Hence, less-talented artists would tend to begin their careers with playing fringe
pieces to avoid the more intense competition, whereas talented artists would tend to
launch their careers in the mainstream market in order to establish their fame. As their
careers unfold, the incentive to invest in the reputation will diminish and the on-the-job
consumption consideration will dominate, so a mid-career switch may occur, depending
on whether the non-pecuniary motive runs in the opposite direction to the pecuniary
11
Since we are concerned with durable products, Gal-Ors (1983) explanation of sales is not very
relevant. He considers sales as being held to capture businesses from those attempting to make excess
purchases for insuring the risk that the product may break down.
12
The fact that artists derive utility from their own art is recognized by, for example, Singer (1981).
6
motive in the rst place.
13
Demand condition is certainly an important factor governing producers behavior. The
above preliminary discussion illustrates that interesting supply-side implications could
arise as a result of the dynamic changes in the demand for music. It diers from the
more widely considered case of investment in productivity enhancement, such as physical
capital and human capital, because in our case, the dynamic elements introduced into
producers behavior stem from the demand side. Along this line, this thesis attempts to
explain why among records with similar qualities some are supplied as good buys while
others are not and to explore how artists with dierent talents develop their careers by
appropriately choosing which elds to enter at dierent stages.
14
These are two important
aspects of the behavior of classical music record producers.
The rest of this thesis is organized as follows. Consisting of Chapters 2 to 4, Part I
investigates the supply of bargains. The next chapter presents a model of record prices. It
species an overlapping-generations environment in which old consumers stock of music
capital depends positively on the quantity of music consumed when young. It shows
that records of mainstream music and re-issues will command lower prices because they
are relatively more appealing to young consumers. In addition, it considers how rms
with dierent sizes may dier in the incentive to cultivate the consumers taste through
supplying good buys. These price dierences can be understood as a third degree price-
discrimination outcome, yet with the origin of the demand-elasticity dierences being
13
The choice problem facing artists outlined here concerns which type of music that their new releases
should be about at dierent career stages. Apparently, they may choose a lower price for their records
at an earlier career stage in order to attract a larger number of audiences and thereby to build up their
reputations. This however would conict with the strategy that to build up the consumption capital
more economically, a lower price should be set for old rather than new products. Thus, even though
artists may have the option to set prices, our analysis will not lose very much of the generality. So we
simply leave the pricing decision to the record companies in our analysis in order not to complicate it.
14
Our issue on record prices is not the same as that of Salop and Stiglitz (1977) whose model considers
why stores may set dierent prices. We consider the non-overlapping ranges of retail prices of records
delimited by the record companies or wholesalers. Similar price-recommendation practice is adopted in
many industries because restricting the range of retail prices can prevent competition among the retailers
from becoming so intense as to make the product self-competing.
7
explained. Data on a sample of records circulating in the U.K. is collected to test the
implications of the model. Chapter 3 describes the data set and some general features
of the classical music record industry. The test results are presented in Chapter 4. Part
II investigates artists career development. It comprises Chapters 5 to 7. This study is
part of a collaborating project. A career building model was constructed by Chan and
Suen (2002) and the theoretical implications are examined empirically here. Chapter 5
presents this model, with its implications stated and explained. They are tested by a
sample of recording careers, the characteristics of which are described in Chapter 6. The
empirical results are presented in Chapter 7. Finally, we conclude in Chapter 8.
8
Part I
Cultivating Consumers Taste: The
Supply of Addictive Bargains
9
Chapter 2
A Model of Record Prices
This chapter presents a model of record prices to explain why bargain records are supplied.
A number of theories on equilibrium price dispersion also address similar issues, and
imperfect information is a factor that the literature has emphasized.
1
It is suggested that
some stores may set a lower price to compete for businesses from the informed customers,
while some others set a higher price to take advantage of the uninformed. This point
was developed in a spatial context by Salop and Stiglitz (1977) and Chan and Leland
(1982) and in an intertemporal context by Varian (1980). However, price uncertainty
is unlikely to be the major reason for the prevalence of bargain records because records
with dierent prices are also displayed in the same store or even on the same shelf.
What is emphasized here instead is the property that the consumption of classical
music depends positively on the past exposure (see Marshall, 1891, p.151). Stigler and
Becker (1977) regarded this dependence as generated by its addictive feature. What they
refer to by addiction is not necessarily in the physiological sense, but is the preference
reinforcement eect of the consumption itself. Our model is constructed on the premise
that given this consumption feature, record companies would have an incentive to culti-
vate the consumers taste by supplying good buys. As the cost of price reduction is paid
for building up the future demand, such under-pricing is an investment behavior.
The mathematical conditions under which an addition-like (or habit-like) consumption
pattern arises in dynamic utility maximization is well investigated by, for example, Pollak
1
Some other factors that the literature has considered are presented later.
10
(1970, 1976), Spinnewyn (1980) and Boyer (1983). Yet, stemming from the household
production approach, a more intuitive account for addiction was rst given by Stigler
and Becker (1977) and further elaborated by Iannaccone (1986) and Becker and Murphy
(1988). However, attention has been paid to demand analysis only, leaving the inuence
of addictive demand on producers behavior largely unexplored.
2
Here, producers of
classical music record, a medium that reaches far more consumers than many other
artistic products that the literature has emphasized such as paintings, are used as an
example to demonstrate that interesting supply-side implications are not lacking.
Obviously, given that preference-constant demand curve slopes downward and taste
is endogenous to consumption level for addictive commodity, producers of it have an
incentive to lower the prices in order to addict the consumers. This is consistent with
the fact that while there are many full-priced items, good buys or bargain products
are ubiquitous in the market of classical music records. Of course, there possibly are
interpretations other than that of cultivating consumers tastes for the prevalence of
good buys in the record market. And there may not be an a priori reason to favor the
one advanced here. Yet we attempt to show that, based on this interpretation, a number
of implications on what bargain records are likely to be (or their characteristics) can be
derived, and they are found to be consistent with the observed practices.
These implications stem from the inquiry into what considerations govern the viability
of this marketing strategy. The separation of novices and addicts is found to be essential
simply because addicts are addicts already. But if the exact identities of the consumers
are not known to the producers or the products are so standardized as to make re-sales
dicult to prevent, they will price lower products that the novices are more inclined to
buy. The outcome turns out to be that of a price discrimination. In the case of classical
music, listeners usually begin with the mainstream works rather than the fringe reper-
toires. And given that the CD is a durable good, purchasing the same record more than
once is unlikely. These lead to the predictions that bargain records are more likely to
be of mainstream music and be those having been marketed for a long time. Another
essential consideration is the rms ability to reap the investment return. While the cost
2
Although Becker, Grossman and Murphy (1994) recognized that the property of addictive demand
may have interesting supply-side implications, detailed analysis is lacking.
11
of supplying bargain records are privately borne, it is the industry demand rather than
only the demand facing the investing rm being enlarged by the then-strengthened taste.
Firms supplying more varieties of records are more capable of capturing the investment
return and are therefore predicted to be more willing to supply good buys. As shown be-
low, these predicted price dierences are associated with the demand-elasticity dierences
as suggested by the theory of the third degree price discrimination. However, instead of
making arbitrary and ad hoc assumptions on the elasticity dierences, our model oers
an explanation of the origin of them.
The formal model to be presented here species an overlapping-generations environ-
ment in which consumers stay in the record market for two periods while record compa-
nies, which may be interpreted as comprising artists as well, stay indenitely. Following
the consumption capital approach in modeling addiction, young consumers music con-
sumption contributes to their future music capital stock, which establishes an intertem-
poral link on the demand side. Instead of explicitly incorporating a household production
function, we adopt the reduced-form specication as in Iannaccone (1986) or Becker and
Murphy (1988). On the supply side, we consider a monopolistic competitive environment
with an entry barrier. Implications on which products would be sold more cheaply will
be derived by examining a steady-state equilibrium.
2.1 The Theoretical Setup
The record market is assumed to have (a measure of) n horizontally dierentiated prod-
ucts. They may dier in the repertoires contained or the performers involved but not the
artistic qualities which presumably are superior because our concern is about good buys.
3
Also, consuming mediocre performances is unlikely to enhance the ability to appreciate
music and have the preference reinforced then.
In each period, there is a constant inux of consumers into the record market and a
consumer will stay for two periods. Therefore, young and old consumers have the same
population size in any period and the total number of consumers remains the same over
time. The set of record companies F = {1, . . . , m}, where m < n, is assumed to be the
3
We ignore other possible quality dierences such as the recording technologies employed.
12
same over time and to stay in the market indenitely. This could be interpreted as a
result of a high setup cost which makes nancing dicult to potential entrants and m
being small enough to let each existing rm to earn a positive prot.
Let us proceed to present the details about the demand side rst and then to char-
acterize the supply side. Time subscripts will be suppressed because we consider steady
state only. For expositional simplicity, we restrict the discussion to the case without
introduction of new records rst. Extension in this dimension is straightforward and is
left to the next section.
2.1.1 Consumers
It is assumed that the utility function (or preferences) of a cohort of young consumers
can as a whole be expressed as
U
y
(z
y
, s
y
) = u(z
y
) + s
y
,
with u : R
+
R
+
, u

> 0 and u

< 0. Representing the rest of the consumption

commodities, s
y
0 is the quantity of the composite good that the cohort of young
consumers purchase. And
z
y
=
__
n
0

k
x
y
k

dk
_
1/
, (2.1)
where
k
> 0 and < 1 are exogenous, is the quantity index of x
y
k
0, the demands
of them for the n classical music products.
k
is the preference intensity for the music
pieces contained in product k. It is assumed to be a one-to-one correspondence to the
popularity of the recorded music of the product, with a more popular (or mainstream)
work being assigned a larger preference intensity. Therefore,
k
also can represent the
music popularity. z
y
is assumed to take a CES form because such kind of specication,
as demonstrated by Dixit and Stiglitz (1977), is a useful aggregate representation of a set
of horizontally dierentiated products.
The preferences of a cohort of old consumers are given by
U
o
(z
o
, s
o
) = Ku(z
o
) + s
o
.
s
o
0 is the quantity of the composite good that the cohort of old consumers purchase;
z
o
=
__
n
0
(x
y
k
+ x
o
k
)

dk
_
1/
(2.2)
13
is the quantity index of the n product variants to them; K 0 is the stock of music
capital, which depends positively on their past music consumption z
y
; x
y
k
and x
o
k
are
their past and current purchases respectively. As we are concerned with steady state
only, x
y
k
and z
y
are also used to denote old consumers past purchases.
Several features deserve attention. First, to old consumers, records purchased previ-
ously generate utility in the same fashion as those purchased currently. This reects the
durability of the CD and the fact that the passion for the same classical performance
will not diminish shortly after purchase, unlike pop music. Previously purchased records
therefore are analogous to endowment in the current period. Second, the preference
intensities of old consumers for dierent repertoires are all equal to one, whereas young
consumers dier according to the popularities of the repertoires.
4
Thus, they are inclined
to buy mainstream music works. This is assumed to capture the fact that people usually
begin cultivating their tastes for classical music with the essential works rather than those
of special interests. Third, to old consumers, the marginal utility of z
o
depends positively
on the stock of music capital K (or the past consumption), corresponding to the notion
that the consumption of classical music is addictive. For simplicity, we assume K = z
y
,
where > 0 represents the eciency of transformation of the past consumption z
y
into
music capital, and hence the extent of preference reinforcement.
5
So the larger the value
of , the more intense the addiction to classical music records will be. Furthermore, is
assumed to be large enough to make K > 1, ensuring that old consumers have a stronger
preference for or derive more utility from music consumption.
6
Suppose a cohort of consumers has in each period a money income M which cannot
be allocated intertemporally.
7
Let p
k
> 0 be the price of a unit of record k and the price
4
We assume
_
n
0

k
dk n to ensure that young consumers preference for the records is not stronger
than old consumers.
5
A larger K increases old consumers utility, which corresponds to the notion that classical music is
benecially addictive (Stigler and Becker, 1977).
6
Alternatively, K = 1 + z
y
may be assumed. But the algebra would become more involved in
deriving the predications stated in Section 2.2.
7
If not, the consumers will borrow and purchase when young all the records that they intend to pur-
chase in the life-cycle. A storage cost may be introduced to preclude this. Nevertheless, our assumption
actually would not lose much of the generality because while listening to the records (which is the process
14
of a unit of the composite good be one. We assume that consumers are price takers.
They choose the quantities x
y
k
, x
o
k
, s
y
and s
o
to maximize lifetime utility, subject to the
budget constraints. Hence, consumers face a two-period dynamic programming problem.
A cohort of old consumers choose x
o
k
and s
o
to maximize the instantaneous utility
Ku
_
__
n
0
(x
y
k
+ x
o
k
)

dk
_
1/
_
+ s
o
,
subject to the budget constraint
_
n
0
p
k
x
o
k
dk + s
o
= M.
K and x
y
k
are determined in the past and therefore are currently xed. Assuming that
M is large enough to give an interior solution, the linearity of U
o
in s
o
implies that
(small) variations in M will entirely translate into changes in s
o
, leaving the choice of x
o
k
unaected. For simplicity, let u() = log(), though z
y
= 0 and z
o
= 0 are not allowed,
then the demand of a cohort of old consumers for product k is
x
o
k
= z
o
(q, K)
_
q
p
k
_

x
y
k
, (2.3)
with
z
o
(q, K) =
K
q
.
8
(2.4)
Given the specication in (2.2), it can be shown that the price of z
o
is q = (
_
n
0
p
1
k
dk)
1
1
,
where = 1/(1 ) > 0 is the elasticity of substitution between any two of the n
horizontally dierentiated products. < 1 is assumed to ensure that the impact of a rise
in q on x
o
k
eected through z
o
is stronger than the substitution eect.
(2.3) and (2.4) can be obtained by applying the two-stage budgeting technique as U
o
is (additively) separable in z
o
and s
o
. Old consumers can thus be interpreted as rst
choosing a general quantity of music products to consume according to (2.4) and then
to decide how many of a particular product variant to purchase according to (2.3). In
other words, (2.4) is the general demand for classical music records of a cohort of old
of getting utility) takes time in the real world, the consumers will leave some records to be purchased
when old even if they can borrow at a cost.
8
s
o
can then be solved from the budget constraint.
15
consumers and (2.3) is their demand for a specic product. Note that in (2.3) x
y
k
is being
subtracted because part of the demand can be satised by the past purchases. x
o
k
is
therefore an eective demand. If we assume that the demand for a product variant by
a consumer is either zero or one, (2.3) gives the number of old consumers of a certain
cohort purchasing product k, ignoring the integer problem.
A rise in p
k
aects x
o
k
negatively, as can be seen from how it explicitly appears in (2.3);
and its eect on q is of measure zero in a setting with continuous product dierentiation.
Yet thinking the problem as in a discrete setting helps illustrate some ideas that will
become useful later. In such a context, a rise in p
k
has a positive eect on q, which
appears explicitly in x
o
k
and implicitly via z
o
, generating two opposite forces. Obviously,
q would increase at a lower rate than p
k
, so a rise in p
k
reduces q/p
k
. Together with the
negative relationship between z
o
and q, the overall eect of p
k
on x
o
k
is negative, keeping
K and x
y
k
constant.
Let us proceed to derive young consumers demands. Cost (or expenditure) minimiza-
tion implies that
x
y
k
= z
y
_

k
q
p
k
_

, (2.5)
where q = (
_
n
0

k
p
1
k
dk)
1
1
is the price of z
y
, given the specication in (2.1). Young
consumers demand for product k is (2.5) such that z
y
equals z
y
( q, q, ) which is obtained
by choosing z
y
and s
y
to maximize
log z
y
+ s
y
+ {max U
o
(z
o
, s
o
) | qz
o
+ s
o
= M}
subject to the budget constraint
_
n
0
p
k
x
y
k
dk + s
y
= M,
where 1 > > 0 is the discount factor.
9
In the above maximization problem, forward-looking (young) consumers will take
into account the positive eect of z
y
on K, leading them to choose a larger z
y
than what
would be chosen had they maximized only the current utility. Substituting away s
y
in the
9
Were equal to 1, young consumers would, given that M is suciently large, purchase up to the
quantity that additional purchase will not be made when old. To preclude this, < 1 is assumed.
Alternatively, we may assume storage cost to be positive.
16
objective function by using the budget constraint and then dierentiating the resultant
objective function generate this rst order condition:
1
z
y
q + (log K log q) = 0, (2.6)
which denes z
y
( q, q, ), though its explicit form can hardly be solved.
10
And the second
order condition is z
y
< 1. The solution for s
y
can be obtained from M qz
y
( q, q, ).
As (small) variations in M will translate entirely into s
y
, M does not enter into (2.6),
which assumes interior solution to hold or M is suciently large.
Consider the eect of a change in p
k
on x
y
k
. A rise in p
k
would reduce
k
q/p
k
, so
x
y
k
depends negatively on p
k
if z
y
does. Substituting z
y
( q, q, ) for z
y
in (2.6) and then
dierentiating the resultant identity with respect to p
k
yield

z
y
,p
k
=
p
k
z
y
z
y
p
k
=
q
q,p
k
+
q,p
k
1/z
y
, (2.7)
where
q,p
k
and
q,p
k
are the elasticities of q and q to p
k
respectively. It can be shown
that

q,p
k
=

k
p
1
k
_
n
0

k
p
1
k
dk
and

q,p
k
=
p
1
k
_
n
0
p
1
k
dk
.
While the elasticities of q and q are of measure zero, insights may be obtained by thinking
them in a discrete context so that their lying between zero and one implies
z
y
,p
k
< 0. This
helps illustrate the idea that in order to intensify the accumulation of K, which amounts
to inducing a larger z
y
, record companies will set a lower price for their products. Another
interesting comparative statics on z
y
is:

z
y
,
=

z
y
z
y

=
(1 + log z
o
)
1/z
y
> 0.
It shows that young consumers will consume more records if increases. This result will
become useful in Section 2.2.1.
10
Recall that U
o
(z
o
, s
o
) = K log z
o
+s
o
, K = z
y
and z
o
(q, K) = K/q. By the envelope theorem, the
derivative of the indirect utility {max U
o
(z
o
, s
o
) | qz
o
+ s
o
= M} is (log K log q).
17
In a steady state, the demand functions derived above apply to every cohort of con-
sumers. As a result, the instantaneous market demand for product k in a period is
simply
x
k
= x
y
k
+ x
o
k
= Kq
1
p

k
. (2.8)
x
y
k
does not appear explicitly because it cancels out with the term x
y
k
in (2.3). Thus,
the inuences of
k
and q on the market demands via x
y
k
are eected through K.
Let us recap the consumers features specied in this section. To young consumers, the
preference intensities for the classical music records dier according to the popularities
of the repertoires that they contain. In addition, record consumption reinforces the
preference through increasing the future music capital stock. The extent of this preference
reinforcement, which precisely is the addictiveness of the records, is governed by the rate
of transformation of the consumption to music capital. To old consumers, their past
purchases generate utility in the same fashion as the current purchases.
2.1.2 Firms
We now proceed to characterize the supply side. Recall that a record company stays in
the market indenitely. The problem facing it is to set up a sequence of prices for its
products to maximize wealth. Given the repetitive market feature in our overlapping-
generations setting, this problem can be solved simply by maximizing the instantaneous
prot with old consumers past purchases being treated as endogenous, because in steady
state without exogenous changes a rms prices would remain the same over time and the
quantities of past purchases would depend on this constant sequence. In other words, to
the producers these quantities are xed in the short run (i.e. a single period) but not in
the long run.
Let 1 >
j
> 0 be the proportion of n, the number of classical music products, being
supplied by rm j F = {1, . . . , m}. By denition,

m
j=1

j
= 1. We denote the
popularity of the recorded music of rm js product i (0,
j
n] by
j
i
and the long run
instantaneous demand for it by X
j
i
which is given by (2.8) with K being endogenous.
Assuming that the marginal output cost c > 0 is constant, rm j chooses its prices p
j
i
to
max
j
=
_

j
n
0
(p
j
i
c)X
j
i
di. (2.9)
18
For an interior solution, the rst order condition is

j
p
j
i
= X
j
i
+
_

j
n
0
(p
j
l
c)
X
j
l
p
j
i
dl = 0, (2.10)
where i, l (0,
j
n]. This implies that a rms prices depend on , the distribution of
j
,
popularities of dierent music pieces and the other rms prices. Intuitively, with some
straightforward modications (2.8) shows that the own demand X
j
i
responds negatively
to changes in p
j
i
whereas the cross eects depend on the sign of ( 1), the relative
magnitude of the substitution eect to the eect of the associated change in z
o
= K/q,
though strictly speaking the impacts of p
j
i
on q and q are of measure zero. Yet, as stated
earlier, 1 < 0 is assumed, so the cross eects would also be negative even in a discrete
product dierentiation setting.
For simplicity, we assume that the set of classical music works can naturally be di-
vided into n/m product varieties and that each rms product span covers precisely this
spectrum. Thus,
j
= 1/m for all j is the initial size distribution. We arrange the rms
products in such a way that their i
th
products are of the same repertoire, yet recorded by
dierent musicians. Hence, i can be treated as an index of repertoire. Unlike pop music,
the popularity of a certain classical music work is very much independent of the performer
since it has its very own appeal. So
j
i
=
k
i
for any j and k is assumed. Furthermore, we
assume that
_
n/m
0

j
i
di is a constant to correspond to the fact that popularities of dierent
works stem largely from consumers rank-ordering rather than some absolute standard
that aects the demand for records vis-a-vis the composite good.
11
As an initial point of
reference,
j
i
= is assumed. We may take as one to allow an analogy between z
y
and
z
o
.
In the next section, we will change the rate of consumption capital accumulation, the
size distribution and the popularity distribution to examine their inuences on steady-
state record prices. In addition, the case with introduction of new products will be
studied.
11
Note that
_
n/m
0

1
i
di = =
_
n/m
0

m
i
di as a result.
19
2.2 Theoretical Implications on Record Prices
This section presents some implications of the model. They are derived from examining
a stable steady-state equilibrium. Obviously, prices of the n records will be the same
in such an equilibrium, given that
j
and
j
i
are evenly distributed. Before introducing
asymmetries in the dimensions of rm size and music popularity, we study how the prices
would depend on the addictiveness of the records rst.
2.2.1 The Impact of the Rate of Consumption Capital Accu-
mulation
As stated earlier, is the rate at which the past consumption translates into music capital.
It therefore governs (or measures) the addictiveness of the classical music records. This
section derives the comparative statics on record price responses to changes in . Through
this, how the addictive consumption feature motivates rms to supply good buys can be
illustrated.
Given
j
i
= for all i and j, condition (2.10) shows that the n/m products supplied
by a rm will contribute to its prot symmetrically, meaning that the n/m prices solving
rm js maximization problem stated in (2.9) are the same. We may therefore treat it as
choosing only one price that applies to all of its products. Let p
j
be this common price
and X
j
, which is given by (2.8) with q modied to (
n
m
_
m
0
p
j
1
dj)
1
1
, be the (long run)
instantaneous demand for a typical product supplied by rm j. X
j
depends on the m
such common prices set by the m rms. Firm js problem amounts to choosing p
j
to
max
j
=
n
m
(p
j
c)X
j
,
and the corresponding rst order condition is

j
p
j
=
n
m
_
X
j
+ (p
j
c)
X
j
p
j
_
= 0. (2.11)
The demand for a typical product of rm j responds to a change in the common price
p
j
by
X
j
p
j
=
X
j
p
j
_

K,p
j + ( 1)
q,p
j

, (2.12)
20
where
K,p
j < 0 is the elasticity of K to p
j
and 0 <
q,p
j < 1 is the elasticity of q to p
j
.
12
(2.12) shows that the eect of a change in p
j
on X
j
can be decomposed into three parts.
First, there is a direct own price eect equaling X
j
/p
j
, since p
j
appears explicitly in
the demand function of a typical product of rm j in the same manner as p
k
in (2.8).
Second, the price set by rm j is a component of the price index q on which X
j
also
depends. This indirect eect of p
j
on X
j
via q is ( 1)
q,p
j X
j
/p
j
. Third, a change in
p
j
would induce a change in young consumers purchase decision, leading to a change in
music capital K which certainly aects X
j
. This indirect eect of p
j
on X
j
is
K,p
j X
j
/p
j
.
Recall that K = z
y
, so
K,p
j =
z
y
,p
j < 0, whose form is given by (2.7) with the prices
being appropriately evaluated.
The negativity of
K,p
j implies that X
j
is more elastic than a conventional demand
whose underlying commodity is not addictive. For preference will indirectly be strength-
ened (weakened) by a lower (higher) price, the long run addictive demand is more elastic.
Similar result is obtained by Stigler and Becker (1977). Acknowledging the investment
opportunity opened up by this property, producers of addictive goods will choose a price
lower than the conventional level in order to hook the consumers, which is recognized by
Becker, Grossman and Murphy (1994) too. Also of interest is the fact that as shown by
(2.12), the demand will be atter when is larger. We should thus expect to observe
a lower price in equilibrium when the horizontally dierentiated records are closer sub-
stitutes simply because rms would then face more direct competition from each other.
But this eect on price is distinct from that of rms cultivating consumers taste. From
(2.7), we can see that the direct eect of a rise in on
K,p
j is ambiguous because how
this increase by itself would aect q,
q,p
j and
q,p
j is uncertain. It is therefore dicult
to conclude whether the rms will under-price more substantially.
Note that condition (2.11) applies to any j F. Symmetry between the rms implies
that the m steady-state equilibrium prices determined by the m rst order conditions in
(2.11) are the same. Imposing p
j
= p for all j and evaluating the price terms in (2.11) at
12
Note that a change in p
j
is a simultaneous change in the prices of all the products of rm j.
q,p
j ,

q,p
j and therefore
K,p
j are not zero, unlike
q,p
k
,
q,p
k
and
K,p
k
in Section 2.2.1.
21
p give
d(p)
dp
=
nX
m
_
1 +
p c
p
_

K,p
j +
1
m

__
= 0.
13
(2.13)
It characterizes equilibrium price p

which applies to all record companies, so superscript

j is suppressed in and X.
14
Equilibrium is stable because
d
2
(p

)
dp
2
=
nX
m
_

c
p

(p

c)
+
p

c
p
2
q/m +
z
y
,p

K,p
j /z
y
1/z
y
_
< 0, (2.14)
where
z
y
,p
=
q+
1/z
y
< 0, a comparative statics derived from using (2.6), is the elas-
ticity of z
y
to a change in p.
15
The stability condition (2.14) indicates that the func-
tion characterizing the system of prices d/dp slopes downward at equilibrium point
p
1
= = p
m
= p

, so if the prices set by the rms are the same and move together, p
will go back to p

when a deviation occurs.

Equilibrium price p

is implicitly dened by (2.13) as a function of , along with other

parameters. We write p

= p

() to emphasize such dependence. The inuence of on

p

can be seen by rst substituting p

() to (2.13) and then dierentiating the resultant

identity with respect to . The comparative statics is:
dp

d
=
p

c
p

q,p
j
(+
z
y
,
/K)
K,p
j
1/z
y

c
p

(p

c)
+
p

c
p
2
q/m+
z
y
,p

K,p
j
/z
y
1/z
y
< 0. (2.15)
The denominator, as implied by the stability condition (2.14), is negative. Recall that

z
y
,
> 0 and
K,p
j < 0, thus the numerator is also negative. These together with the
minus sign attached to the above quotient imply that p

depends negatively on , thereby

establishing:
Proposition 2.1. If the consumption capital accumulates at a higher (lower) rate from
the past consumption, then record prices will be lower (higher).
13
Of course, the
K,p
j is evaluated at p
j
= p, j = 1, . . . , m.
14
1 (pc)/p has to be positive, otherwise interior solution to the maximization problem is not well
dened. The assumption that < 1 suces for this.
15
In (2.14), we have used the fact given by (2.13) that

K,p
j +
1
m
=
p

c
.
22
In our theoretical setup, represents the addictiveness of the classical music records since
it governs the degree of preference reinforcement of the past consumption. Proposition
2.1 therefore says simply that price depends negatively on addictiveness.
A point that should be highlighted is that while record companies can intensify the
consumption capital accumulation by charging a lower price, of which the eectiveness is
determined by
K,p
j (or
z
y
,p
j ). The numerator of (2.15) shows precisely that the direct
eect of on
K,p
j is negative. That is, a higher would cause K to become more
responsive to price changes. Under-pricing would then become a more eective way to
build up consumers music capital and the atter instantaneous demands as a result
of the increased responsiveness of K would imply a lower steady-state price, which is
precisely the outcome as suggested by the third degree price-discrimination story that a
more elastic demand will be associated with a lower price.
2.2.2 The Eect of Popularity Distribution
We have discussed in the last section why the addictive property would give rise to a
lower steady-state price, along with the inuence of on it. Nevertheless, the force
behind such a result may not carry equal strength across dierent products when they
are not symmetrical to each other because they may not be equally appealing to young
consumers then, while future returns from the under-pricing stems from addicting young
rather than old consumers. Popularity of the recorded music is a dimension where product
asymmetry can appear.
Maintaining the assumed size distribution
j
= 1/m, for any j F, this section
investigates the impact of
j
i
by redistributing them around
j
i
= such that mainstream
works will be assigned larger preference intensities by young consumers. However, this
does not aect old consumers directly since
j
i
do not enter U
o
explicitly.
Recall that the maximization problem facing rm j is given by (2.9) and the associated
rst order condition is (2.10). Unlike the treatment in the last section, here we allow the
prices of the products of the same rm to dier in order to examine the eect of popularity
asymmetry in the recorded music on the prices.
It can be shown that the own and cross partials of the demand for a rm js product
23
are
X
j
i
p
j
i
=
X
j
i
p
j
i
_

K,p
j
i
+ ( 1)
q,p
j
i

_
(2.16)
X
j
l
p
j
i
=
X
j
l
p
j
i
_

K,p
j
i
+ ( 1)
q,p
j
i
_
(2.17)
respectively, where i = l. (2.17) reects that the inuence of p
j
i
on X
j
l
is eected through
K and q.
Note that the m rms are symmetrical. In equilibrium, p
j
i
= p
k
i
because by denition
the music of any two records of the same repertoire have the same popularity and their
qualities are the same by assumption. So in equilibrium the elasticity terms in (2.16) and
(2.17) are not of measure zero.
16
Let the price common to the m records of the same
repertoire be p
i
and the corresponding popularity be
i
, where i (0,
n
m
]. Substituting
(2.16), (2.17) and
j
= 1/m to (2.10) and imposing the condition that p
j
i
= p
i
for any
j F give

p
i
=

p
i
_

K,p
j
i
+ ( 1)
q,p
j
i
_
+ X
i
_
1
p
i
c
p
i
_
= 0. (2.18)
It characterizes equilibrium prices p

i
with each applying to the m records of the same
repertoire but produced by dierent rms, so superscript j is suppressed in and X
i
. In
addition, it denes p

i
as functionals of
i
. It can be shown that in the neighborhood of

i
= , where the equilibrium prices are equal, a redistribution of
i
will not aect the
value of and the associated changes in p

i
will oset each other so that
_
n/m
0
dp

i
di = 0.
This latter result implies that equilibrium q and q will remain the same, which in turn,
as can be seen from (2.6), leaves z
y
( q, q, ) unaected.
Substituting p

i
into (2.18) and totally dierentiating it such that d
i
=
_
k=i
d
k
dk
give
dp

i
d
i
=

i
q/n
i
1/z
y

i
_
1
np

i
_
q+
1/z
y
1 +
__

p
2
i
_

K,p
j
i
+
1
n
_
+
X
i
p
2
i
[p

i
(p

i
c) + c]
,
(2.19)
which is the eect of a redistribution of
i
on p

i
. The numerator is negative because
1/z
y
< 0 by the second order condition of the utility maximization. The denominator
16
They are therefore not treated as equaling zero in deriving the comparative statics in this section.
24
is the value of d
2
/dp
2
i
such that
_
n/m
0
dp

i
di = 0 and p
i
= p

i
for all i. Assume that the
equilibrium is stable to a price redistribution so that prices will move back to the original
equilibrium when a change in p

i
such that
_
n/m
0
dp

i
di = 0 occurs. Then the denominator
is negative. These together with the minus sign attached to the quotient in (2.19) imply
dp

i
/d
i
< 0, which establishes
Proposition 2.2. If there is a redistribution of popularities in favor of
i
, the price of
the records of repertoire i will decrease, vice versa.
Let us discuss the intuition behind this proposition. Our model assumes that young
consumers preference intensities for products of dierent recorded music dier according
to their popularities, whereas old consumers do not. This corresponds to the fact that
mainstream works are usually what beginners would begin with in cultivating the taste
for classical music. Obviously, rms would not set a lower price for records that will be
purchased merely by old consumers for the purpose of intensifying music capital accu-
mulation. Instead, they would set a lower price for products that are more attractive to
young consumers.
This point can be seen from the numerator in (2.19), whose sign is given by the direct
eect of a redistribution of
i
on
K,p
j
i
. Its negativity indicates that K becomes more
elastic to changes in the price of the i
th
records of the m rms when their recorded music
have a higher popularity. That is, music capital can be increased more eectively through
lowering the price of the records of this music. As a result, the demands for records of
such repertoire will become more elastic, giving rise to a lower equilibrium price to them,
which, again, is a third degree price-discrimination outcome. However, were the records
not addictive so that K did not depend on the past consumption (or young consumers
consumption), the eect and therefore the proposition discussed here would no longer
apply.
Although the analysis assumes the point at which
i
are the same as the initial point
of reference, a given uneven distribution of popularities in the neighborhood of
i
=
can be thought of as generated by a popularity redistribution around it. We therefore
conclude that products on the essential repertoire will be priced more cheaply.
25
2.2.3 The Eect of Size Distribution
Another factor that may lead to a price dispersion among the n horizontally dierentiated
records is asymmetry in rms sizes because their incentives to build up consumers music
capital will then dier. This section studies the eect of a redistribution of
j
in the
neighborhood of (
1
m
, . . . ,
1
m
) and shows that a larger record company, measured here
by the number of products supplied, is more capable of aecting K and reaping the
investment return, thereby setting a lower price for their products in equilibrium.
The assumption that
j
i
= for all i and j is maintained. As illustrated in Section
2.2.1, products of the same rm will then command the same price. We can apply the
same objective function and the same rst order condition stated in that section except
that 1/m is replaced by
j
to allow changes in size distribution to occur. That is, rm j
will choose p
j
to satisfy

j
p
j
= n
j
X
j
_
1 +
p
j
c
p
j
_

K,p
j + ( 1)
q,p
j

_
= 0 (2.20)
with
0 <
q,p
j =
q,p
j =

j
p
j1
_
m
0

j
p
j1
dj
< 1.
There are m such rst order conditions together determining equilibrium prices p
j
, j =
1, . . . , m, as functions of (
1
, . . . ,
m
). When
j
= 1/m for all j, the m equilibrium prices
are the same. It can be shown that in the neighborhood of this point, a redistribution of

j
will not aect
j
and the associated changes in the equilibrium prices will oset each
other so that

m
j=1
dp
j
= 0. The latter result implies that q and q will remain the same,
so z
y
( q, q, K) will too be unaected.
Substituting equilibrium prices p
j
= p
j
(
1
, . . . ,
m
) to (2.20) and totally dierenti-
ating it such that d
j
=

k=j
d
k
give
dp
j
d
j
=
p
j
c
p
j
_
q+
1/z
y
+ 1
_
c
p
j2
_

K,p
j +
1
m

_
+
p
j
c
p
j2
1
m
_
q+
1/z
y
+ 1
_ < 0, (2.21)
the eect of a redistribution of
j
on record prices. The numerator is negative since
1/z
y
< 0 by the second order utility maximization condition and 1 < 0 by
assumption. The denominator, which is the value of d
2
/d
j2
such that p
j
= p
j
, j =
26
1, . . . , m, and

m
j=1
dp
j
= 0, is also negative. Thus, equilibrium dened by (2.20) is
stable to a price redistribution. (2.21) establishes
Proposition 2.3. If there is a redistribution of product shares in favor of rm j, the
price of its products will decrease, vice versa.
Intuition behind this comparative statics can be obtained from looking at the paren-
thesized term in the numerator of (2.21). It comprises the direct eects of a change in

j
, as a result of a redistribution in the product shares, on
K,p
j and
q,p
j . A larger

j
implies that more products are subject to rm js pricing decision, which increases
the absolute sizes of these two elasticities. Thus, rm j would have a greater ability to
aect K. This attens the demand for its typical product and strengthens its incen-
tive to hook the consumers. In other words, the demand facing a larger rms is more
elastic. A lower steady-state price for its products is implied. Obviously, the eect just
described and therefore Proposition 2.3 will not be valid when K is independent of the
past consumption.
Another intuition behind Proposition 2.3 is more subtle and less obvious in the above
derivation. Note that a larger K as a result of a rms price reduction will benet the
other rms as well, while the cost is privately borne. Such a divergence between the
marginal private return and the full marginal return from supplying good buys will be
smaller for those rms with a boarder product span, so they will choose a lower price in
equilibrium.
Similar to the analysis in the previous section, although we assume an even size
distribution, based on (2.21) we may still conclude that records supplied by larger rms
will be cheaper because a given uneven size distribution in the neighborhood of (
1
m
, . . . ,
1
m
)
can be thought of as generated by a redistribution round it.
2.2.4 Price Dierence between New Release and Re-issue
The discussion so far assumes that the same set of records circulates indenitely. To
analyze how the prices of new releases and re-issues may dier, we change the setting in
this section by assuming that a record circulates for two consecutive periods only and a
new record will be introduced when an old record is withdrawn to keep the number of
27
circulating records of each rm the same over time, with the assumptions on evenly dis-
tributed sizes and music popularities being maintained. New releases (re-issues) therefore
refer to those records that did not (did) circulate in the preceding period.
17
For simplicity, suppose in each period the catalogue of a rm has n/2m new releases
and n/2m re-issues. The total number of records thus remains at n over time. Given
that the CD is durable, we assume that a consumer will not purchase the same record
more than once. As a result, old consumers demand for a re-issue will be smaller than
that for a new release, while such a dierence does not exist among young consumers,
who by denition have not accumulated any item yet.
Obviously, a new release and a re-issue supplied by the same company will not con-
tribute to its prot in the same manner. But symmetry remains among its products of
the same issuance type because all repertoires are assumed to be equally popular, imply-
ing that they will command the same price in equilibrium. We may therefore assume,
without loss of generality, that rm j chooses two prices, p
j
n
and p
j
r
, which are common
to its new releases and re-issues respectively to
max
j
=
n
2m
_
(p
j
n
c)X
j
n
+ (p
j
r
c)X
j
r

,
where
X
j
n
= Kq
1
p
j
n

+ X
j
n
y
X
j
r
= Kq
1
p
j
r

are, respectively, the instantaneous demands for a typical new release and a typical re-
issue of rm j. For old consumers previous purchases do not comprise current new
releases by denition, young consumers demand appears explicitly in X
j
n
. If p
j
n
diers
from p
j
r
, the price of a product changes over time. Because each record will experience
the status of being a new release and a re-issue, p
j
n
and p
j
r
represent pricing policies rather
than prices pertaining to certain records.
17
Re-issuing may involve repackaging the product. But this feature is not essential to our analysis.
28
The rst order conditions of the above maximization problem are

j
p
j
n
=
n
2m
_
X
j
n
+ (p
j
n
c)
X
j
n
p
j
n
+ (p
j
r
c)
X
j
r
p
j
n
_
= 0 (2.22)

j
p
j
r
=
n
2m
_
(p
j
n
c)
X
j
n
p
j
r
+ X
j
r
+ (p
j
r
c)
X
j
r
p
j
r
_
= 0, (2.23)
with
X
j
n
p
j
n
=
X
j
n
y
p
j
n
_

K,p
j
n
+ (
q,p
j
n
1)
_
+
X
j
n
o
p
j
n
_

K,p
j
n
+ ( 1)
q,p
j
n

_
(2.24)
X
j
r
p
j
n
=
X
j
r
p
j
n
_

K,p
j
n
+ ( 1)
q,p
j
n
_
(2.25)
X
j
r
p
j
r
=
X
j
r
p
j
r
_

K,p
j
r
+ ( 1)
q,p
j
r

_
(2.26)
X
j
n
p
j
r
=
X
j
n
y
p
j
r
_

K,p
j
r
+
q,p
j
r
_
+
X
j
n
o
p
j
r
_

K,p
j
r
+ ( 1)
q,p
j
r
_
. (2.27)
The responses of X
j
n
o
and X
j
r
to changes in p
j
n
and p
j
r
can be easily obtained by modifying
(2.16) and (2.17), whereas the responses of X
j
n
y
can be obtained with the aid of (2.5) and
(2.7).
Conditions (2.22) and (2.23) apply to any one of the m rms, hence p
j
n
= p

n
and
p
j
r
= p

r
for all j F in equilibrium. We may therefore impose p
j
n
= p
n
and p
j
r
= p
r
to
(2.22) and (2.23). The resultant derivatives /p
j
n
and /p
j
r
characterize p

n
and p

r
.
By comparing which marginal schedule is lower around the point p
n
= p
r
= p, we can
know which price will be lower in equilibrium, assuming that the equilibrium is stable.
Equality of p
n
and p
r
implies
K,p
j
n
=
K,p
j
r
,
q,p
j
n
=
q,p
j
r
and
q,p
j
n
=
q,p
j
r
. Given these, it
can be shown that

p
j
n

p
j
r
=
n
2m
X
j
n
y
_
1
p c
p
_
> 0
when p
n
= p
r
= p, hence p

n
> p

r
.
18
This establishes
Proposition 2.4. Record companies will set a higher price for new releases than for
re-issues, implying a declining temporal price pattern.
18
Recall that 1 < 0, the parenthesized term is positive.
29
This seemingly is a trivial result because the demand for new releases is larger. How-
ever, attention should be paid to the reason why such a larger demand can translate
into a higher price, while rms have the option to under-price more the new releases.
The comparative statics in the previous sections demonstrate that how responsive music
capital K is to changes in record prices aects the rms incentive to supply good buys
and governs which products will be cheaper. Applying the reasoning advanced in Section
2.2.2, had new releases been preferred by young consumers, rms would have a stronger
incentive to under-price them.
The fact that charging a lower price for either type of records is equally eective in
cultivating the consumers taste sets aside this consideration and shifts the emphasis to
the question on under-pricing which type of records is less costly. Obviously, it does
not pay to addict old consumers, whose future purchases are zero. Therefore, it costs
more to supply new releases as good buys due to the larger demands for them stemming
from the higher concentration of old consumers. To build up consumers music capital,
a more lucrative strategy then is to set a higher price when the product is new and a
lower price when the product has already saturated the market of old consumers, which
avoids leading old consumers to substitute too immensely away from the more expensive
records.
The elasticity dierences as suggested by the theory of the third degree price discrim-
ination do appear. Note that young consumers long run demand is more elastic than old
consumers because a larger current consumption will bring up a larger future demand of
the former group (but not the latter group) of consumers. While old consumers are more
inclined to buy new releases, such records are priced higher.
2.3 Remarks
In our theoretical setting, young consumers have a lower valuation on classical music
records but will have a higher valuation when they age due to the increased stock of
music capital. Interestingly, the development of this taste is not exogenous to producers
pricing decisions because by supplying good buys they can induce listeners to consume
more and thereby enhancing their capability to derive utility from music consumption in
30
the future. Returns to the producers on charging a lower price are generated by the larger
quantity of future purchases induced by the higher marginal utility of music consumption
associated with the larger music capital stock.
Companies of dierent sizes will not invest equally in addicting the consumers since
external investment benets will dier according to size. The model here predicts that
smaller rms will invest less and free ride on larger rms eort. In addition, records of the
same company will be priced dierently because good buys are supplied to build up young
consumers future music capital rather than to benet the soon-leaving old consumers.
This implies that records of mainstream music, which presumably is preferred by young
consumers, and re-issues will command lower prices.
While the four results are, as shown earlier, consistent with the story of the third de-
gree price discrimination, the latter two results are analogous also to a price-discrimination
outcome in which consumers with established tastes end up are paying more. However,
the rms here are unable to identify the consumers taste dierences, nor to prevent re-
sales among them. They arrive at such an outcome by taking into account, in deciding
which products are to be oered more cheaply, the fact that old consumers tend to pur-
chase products that are not marketed before and are relatively less inclined to mainstream
music.
Before we end the discussion, it is constructive to compare the model presented here
with other theories of sales. Note that although record companies cannot charge dierent
prices for dierent cohorts directly, they can choose to under-price records that are rela-
tively more appealing to young consumers to intensify the accumulation of music capital.
Hence, good buys here can be interpreted as introductory oers given to young consumers
to build up their tastes for classical music products. In Doyle (1986), a favorable price
is also interpreted as an introductory oer. However, instead of aiming at increasing the
industry demand as in our analysis, it is a strategy of the new rm to induce customers
of other rms to switch to try and learn whether its product, which is new rather than
familiar to the market participants, suits their tastes. This can be successful because cus-
tomers will become loyal if the product matches their taste. But in our model consumers
are not necessarily loyal.
In Sobel (1984), sales are held to capture consumers who have a low value on the
31
product, when their accumulated mass becomes large enough. Despite the dierence
in emphasis, bargain records can also be regarded as a discount oered to low-value
consumers (i.e. young consumers) in our analysis. In addition to the disloyalty of the
(high-value) consumers, our analysis diers from Sobels (1984) in that the return on
supplying good buys stems from turning the low-value users to high-value users in the
former, while it is the opportunity to capture business from the mass of low-value users
in the latter.
Our analysis also has some similarities to the model of Gallini and Karp (1989) which
analyzes cyclical sales. They consider a monopolistic environment in which consumers
have to incur a specic adoption cost before they can consume the product. Since they
expect that the rm would set the price at their reservation level, they would refrain from
purchasing the product unless its initial price is low enough to justify paying the specic
adoption cost. As a result, the rm can take advantage of the captives (i.e. those already
incurred the adoption cost) by setting a higher price, but a lower price can lock in more
consumers. The captives in Gallini and Karp (1989) are analogous to addicts and locking
in consumers there is analogous to addicting novices in this work. However, the record
companies in our analysis are able to separate novices from addicts, though imperfectly,
they thus do not face exactly the same tradeo as in Gallini and Karp (1989).
It is also of interest to note the dierence between our model and Lazears (1986),
though his concern is more about fashionable items rather than products having a lasting
attractiveness like classical music. His model also implies a declining temporal price
pattern, but the reason is that the seller is uncertain about the customers valuations.
Price will be substantially reduced when the product is found to be un-welcomed. Here,
the reason why re-issues are cheaper is exactly the opposite: they are welcomed by the
customers and therefore have saturated the market of old consumers.
32
Chapter 3
The Sample of Record Prices
The model presented in the last chapter implies that prices of classical music records
will exhibit certain patterns. To test the theoretical implications, data on a sample
of circulating records are collected. This chapter describes the sampling criteria and
the measurements of the variables highlighted by the model. In addition, some general
features of the industry will be presented.
3.1 Constituents of the Sample
The sample comprises 4,467 classical music CD products circulating in the U.K. They
all involve piano performance to a considerable extent and the participation of good
pianists. For each sampled record, we measure its price, the performance quality, the
popularity of the recorded music, the size of the record company and identify whether it
is a rst release or a re-issue. Before discussing these measurements, let us explain why
the sample is so collected rst.
The market for classical music records is worldwide. Yet a large regional market
should still be suciently representative. In addition, to avoid complications arising
from unparallel price denitions and product catalogues, we consider one regional market
only. The British market is chosen for two reasons. First, it is not too thin to leave too
little room for fringe music and small record companies to survive, ensuring adequate
variations in the corresponding explanatory variables in the empirical analysis. Second,
systematically collected data on records circulating in this market are available. They are
33
published as the RED cd-rom by the Gramophone music magazine.
1
The version that
we use was released in May 2001.
Note that the quality dimension of our concern is the artists performance. As com-
paring, say, a piano performance with a percussion performance is dicult, collecting a
sample of records that are acceptably homogenous in the instruments involved is essential.
The piano is chosen as the basis because the accompanying sample size is large and its
repertoire is broad enough to substantiate popularity dierences. Therefore, a sampling
rule adopted is that CDs with over half of the tracks involving no piano performance are
excluded.
2
Since the analytical problem concerned is the supply of good buys, and preference
reinforcement is more likely to happen in the consumption of good performances rather
than mediocre performances, we control our sample to include records with good qualities
only. So the sample is controlled to include only the circulating records that involve
participation of a pianist who has a column description dedicated to him in the New
Grove Dictionary of Music and Musicians, 2
nd
ed., an authoritative music encyclopedia.
Alternatively, we may rely on the outcomes of major piano competitions to nd a set
of good pianists. However, this method is abandoned because some great pianists such
as Artur Rubinstein and Sviatoslav Richter would then be excluded. In addition, this
method would render dierentiating the sampled pianists talents dicult. As explained
later, talents of the pianists can be assessed by the lengths of their column descriptions
in the New Grove. If we resort to this method of appraisal while the sampled pianists are
selected by another criterion, excluding those not satisfying it yet appearing in the New
Grove can hardly be reconciled.
For several reasons, the sampled records do not cover all the classical pianists in
the New Grove. First, those having no circulating record certainly would not appear in
the sample. Second, artists of other instruments or conductors yet classied as pianists
too by the New Grove are excluded. Pablo Casals, who is a well celebrated cellist,
1
The RED cd-rom reports, for each circulating record, its price, the publishing label, the issue date
and the music contained in its dierent tracks.
2
Stricter conditions may be imposed to include in the sample only those records that are completely
of piano works. Details are exposited later.
34
is an example. Pianists who have earned their spaces in the New Grove by other
musical achievements can be easily identied by checking their column descriptions and
recording careers. Third, those New Grove pianists whose records are all unable to fulll
the sampling criterion on the degree of piano involvement would fall outside the sample.
Our list of good pianists on which the record sampling is based consists of 306 New
Grove pianists. Their circulating CD products which adequately involve piano perfor-
mances are the 4,467 sampled records. These records also represent some other pianists
because dierent pianists recordings could appear in the same product. Yet such prod-
ucts are not so numerous as to defeat our original purpose of examining the prices of
good records only, as shown by the fact that 3,602 of the sampled records have all the
tracks recorded by the same pianist.
3.2 The Measurements
This section discusses how the variables highlighted by the theoretical model are measured
to conduct an empirical analysis. Data on record prices and the number of classical music
products that a company supplies can be directly extracted from the RED cd-rom. But
the music popularity and the performance quality have to be approximated.
3.2.1 Price
As a matter of fact, the range of retail prices of a record is delimited by the record
company rather than a mere outcome of retailers decisions. In the RED cd-rom, record
prices are classied into four levels according to which ranges of recommended retail prices
they belong. Table 3.1 gives the ranges that the four price categories refer to and the
corresponding numbers of circulating records. The price is on a per disc basis because a
product may consists of more than one disc.
As shown in the table, 64 percent of the products are full-priced. However, if we
assess the prevalence on the basis of the number of discs, this price category would not
be so dominating because box set items are likely to be cheaper.
3
3
This may be interpreted as a quantity-discount result. Yet it deserves notice that box set items are
35
Table 3.1: Prices of the Circulating Records
Price Category Recommended Price No. of Circulating Products
Full above 9.99 36,065
Mid 6.99 9.99 12,488
Budget 4.99 6.99 3,642
Super Budget below 4.99 4,039
3.2.2 Product Quality
Recall that artists performance is the dimension of record quality that we emphasize.
Certainly, the skill or talent of the artist is the major determinant of performance quality.
Given that piano involvement is a basis on which the sampled records are drawn, their
qualities can satisfactorily be represented by the pianists talents, which can be measured
(or approximated) by the lengths in terms of the numbers of words of the column descrip-
tions of the pianists in the New Grove. Pianists not covered by our list of good pianists
thus have zero measured talent.
4
For a sampled pianist who is classied by the New
Grove as another kind of musician as well, we discount his New Grove column length by
the ratio of the number of his piano records to his total number of records in measuring
his talent because the column is partly devoted to describing his other musical pursuit.
5
Figure 3.1 is a histogram of the measured talents of the 306 New Grove pianists that
our sampled records are based. The skewness of the distribution of pianists talents is
3.04. Table 3.2 lists the 20 most talented pianists as identied by our measurement
method and the numbers of their circulating CD products.
Experienced listeners should also be familiar with them. To introduce some of them,
Arthur Schnabel is well-known for his denitive interpretation of Beethoven; Alfred Bren-
del, Rudolf Serkin and Wilhelm Kemp are also important representatives of the German
School; Arthur Rubinstein is an authoritative exponent of Chopins piano works; Glenn
Gould has his idiosyncratic yet celebrated interpretation of Bachs keyboard music. In
likely to be re-issues and may therefore be a result of the producers cultivating the consumers taste.
4
Note that we do not exclude products that are produced jointly by a sampled pianist and a non-
sampled pianist.
5
Vladimir Ashkenazy and Daniel Barenboim are two of the few such cases.
36
TALENT
1
3
0
0
.
0
1
2
0
0
.
0
1
1
0
0
.
0
1
0
0
0
.
0
9
0
0
.
0
8
0
0
.
0
7
0
0
.
0
6
0
0
.
0
5
0
0
.
0
4
0
0
.
0
3
0
0
.
0
2
0
0
.
0
1
0
0
.
0
0
.
0
100
80
60
40
20
0

Figure 3.1: Distribution of Talents
fact, Table 3.2 lists the very top pianists only. Among the 306 pianists, 76 percent have
a talent score of below 300.
The fact that some of the pianists listed in Table 3.2 have only a handful of records
is not as strange as it may seem because they lived in the period when record production
was still uncommon or became common only in their late artistic careers, leaving them
only a short period to engage in such a production. In addition, some earlier musicians
might even have disliked making records.
6
Josef Hofmann is a well-known example.
Given the method of measuring artistic talent, the quality of a sampled record is
measured by the weighted average of the talents of the pianists producing it. The weight
assigned to a pianists talent is the ratio of the number of tracks involving him to the
total number of tracks involving a piano performance. Although this calculation ignores
tracks without a piano performance, the representativeness is ensured by the exclusion
of products having a low degree of piano involvement.
7
6
Such a distaste is due mainly to the fact that the process of recording involved lots of toil and trouble
in their time. Day (2000) gives an interesting discussion on this.
7
This measurement method may still be deemed inaccurate as the sample still has music pieces in
37
Table 3.2: The 20 Most Talented Pianists in the Sample
Pianists Talent No. of CD Products
Arthur Schnabel 1,333 50
Sviatoslav Richter 1,130 191
Leopold Godowsky 1,067 6
Wanda Landowska 1,040 6
Rudolf Serkin 1,040 69
Alfred Brendel 1,030 126
Vladimir Horowitz 939 74
Glenn Gould 894 67
Alfred Cortot 803 61
Artur Rubinstein 793 170
John Ogdon 702 38
Claudio Arrau 628 53
Dinu Lipatti 625 17
Harold Bauer 593 10
Josef Hofmann 584 10
Murray Perahia 551 40
Maurizio Pollini 532 56
Dame Myra Hess 528 23
Emil Gilels 522 67
Wilhelm Kemp 517 74
3.2.3 Music Popularity
Classical music diers very much from, say, pop music in that the same repertoire may
be recorded repeatedly by dierent, or even the same, artists. This is an outcome of
the fact that classical music repertoire has its very own appeal to listeners, while the
demand for other kinds of music is largely driven by the performers. As a result, in the
case of classical music, the composer often over-shadows the performer in determining
the popularity of the recorded music.
8
which piano serves only as an accompaniment. Because of this, the sample is divided into two parts
according to the role of piano. Details are presented later.
8
Artur Rubinstein, one of the most popular concert pianists in America, has tried to popularize
Debussys impressionistic piano music through his concert performances. Yet his eort was not very well
38
Acknowledging this feature, two methods are devised to measure the popularity of
a piano piece: (i) the number of circulating records with piano performance that the
composer has, which is an obtainable gure from the RED rd-rom; and (ii) the number
of works belonging to the composer that have been included in the syllabus of the three
piano diploma examinations of the Royal School of Music. The rst measurement is more
of a market perspective, whereas the second one is more of an academic perspective in
appraising how important a composer is in the piano repertoire.
9
Table 3.3 lists the two sets of most popular composers as identied by the two mea-
surement methods. The names appearing in the table should be familiar even to laymen.
Note that the number of composers that we found from the RED cd-rom is 2,773. The
table shows that famous composers do receive very high ranks in both measurement
methods.
The track-weighted average of the composers popularities is taken as the popularity
of the recorded music of a product. Corresponding to the two appraisal methods just
described, two popularity indices are assigned to each sampled record. As shown later,
the two measurements do not have much practical dierence. Recall that in measuring
performance quality it is dicult to simultaneously take into account dierent kinds of
performers, causing us to consider only tracks with a piano performance. In measuring
music popularity, such a restriction is unnecessary because the central role of the piano
in classical music makes popularity indices of piano repertoire good approximations for
other kinds of classical music work as well.
10
appreciated by the audiences, as in his time the French piano music was still very fringe and had yet to
gain the publics acceptance.
9
Scherer (2004) used product count to measure a composers productivity.
10
Note that our sampling rule restricts only the degree of involvement. It is possible that piano is not
the sole instrument in a sampled record. Thus, we still would have to rely on a popularity index of piano
works to appraise other kinds of music even if tracks without a piano performance are not considered.
This is why the RED method is devised to count also the circulating records in which piano is not the sole
instrument. To the critical readers, the justication for the applicability of the two popularity indices in
our sample may still be regarded as inadequate. So we have constructed a sub-sample in which records
are merely of piano music.
39
Table 3.3: The 15 Most Popular Composers
The RED Method The Diploma Method
Composer Pop. Index Composer Pop. Index
Beethoven 1,372 Beethoven 31
Schubert 1,216 J. S. Bach 23
Mozart 1,097 Brahms 21
Brahms 1,044 Mozart 13
Schumann 963 Chopin 13
Chopin 945 Schubert 11
Liszt 798 Schumann 11
J. S. Bach 691 Scarlatti 10
Rachmaninov 626 Debussy 9
Debussy 615 Prokoev 9
Tchaikovsky 570 Rachmaninov 8
Ravel 431 Liszt 7
Mendelssohn 419 Faure 7
Prokoev 410 Ravel 6
Grieg 394 Haydn 6
3.2.4 Size of the Record Company
The relevance of company size in Proposition 2.3 stems from its determining the magni-
tude of the divergence between the private and the full returns on supplying good buys.
In our theoretical setup, company size is simply the number of products that it supplies.
Empirically, this should still be a good approximation of the ability to reap the investment
return. Although marketing ability also matters, data on it are scant.
While a record company may simultaneously market dierent labels, which is by itself
an interesting phenomenon, the RED cd-rom reports the label but not the publishing
company.
11
Thus, the parent has to be traced from other sources, such as the ocial
11
A record company may acquire various labels that were originally independent. But this historical
reason is not sucient for explaining why a record company would continue to market them instead of
merging them together. Perhaps such a practice can give consumers a clearer idea about the product
catalogue of the company, given the fact that the collaborative relationship between a performer and a
label is usually long term and dierent labels have dierent specialities.
40
websites of the labels and online label guides. If a clear indication is lacking, the label
is assumed to be independent. This treatment is reasonable because labels belonging
to large record companies are usually well recognized whereas small labels generally are
independent.
Table 3.4: The 10 Most Sizable Record Companies
Company No. of Circulating Products
Universal Music 5,946
EMI 3,109
BMG 2,957
HNH International 2,740
Chandos 1,553
Warner 1,543
Sony 1,417
Hyperion 984
ASV 944
BIS 892
Table 3.4 lists the ten most sizable record companies and the numbers of their cir-
culating records, their measured sizes. Because labels may be more well-known than
the record companies, it is constructive to describe some catalogue structures. Deutsche
Grammophon, Decca, Philips, etc. belong to Universal Music; EMI classics, HMV clas-
sics, Virgin Classics, etc. are under EMI; BMG has RCA, Arte Nova, etc.; Teldec and
Erato are issued by Warner; Sony is the parent of Sony Classics; and HNH International
is the parent of Naxos and Marco Polo. Chandos, on the other hand, is the largest
independent classical label in the British market.
3.2.5 New Release and Re-issue
Re-issuing is very common among classical music records. This is not restricted to the
period when the CD was rst introduced to replace the LP and cassette. The RED cd-rom
does not report which products are rst releases and which are re-issues. Fortunately, for
records that were reviewed by the Gramophone music magazine, such information can be
41
found in the Gramole which contains all review articles ever printed on the Gramophone.
For records that are not reviewed, they are identied as re-issues if more than half of the
recording years of the tracks precede the issue years of the corresponding products by 3
years because re-issuing is unlikely to occur within such a short time interval. We may
lengthen the interval to reduce the number of rst releases being misidentied as re-issues
by our method. But this would risk misidentifying more re-issues as rst releases.
The issuance types of 3,338 sampled records can be obtained from the Gramole.
Though misidentications may occur for the rest of the sampled records, they should
constitute only a small portion of the whole sample. In addition, the misidentications
are largely restricted to the set of identied re-issues, which simply would cause conrming
Proposition 2.4 by the data more dicult.
Another problem that deserves notice is that re-issues of materials previously marketed
in other formats that are now obsolete are likely to be identied as re-issues. The better
enjoyment delivered by the improved format is ignored. This would make the prices of
the identied re-issues higher than what would otherwise be, causing, again, Proposition
2.4 more dicult to be conrmed by the data.
3.3 Some General Features of the Data
Recall that our sample consists of 4,467 circulating records. They are products of 306
New Grove pianists. These sampled records involve almost all record companies and
some pianists other than our list of good pianists. Based on the method described in the
last section, 2,691 and 1,776 of the sampled records are identied as rst releases and
re-issues respectively, showing that re-issuing is not uncommon.
Table 3.5: Prices of the Sampled Records
Price Category No. of Sampled Records No. of New Releases
Full 2,341 1,808
Mid 1,531 509
Budget 354 177
Super Budget 194 159
42
Table 3.5 shows the prices of the sampled records.
12
Again, full price is the norm,
but the proportion of full-priced records is smaller in the sample than in the population
of all circulating records. Comparing the gures in Table 3.5 with the corresponding
gures in Table 3.1, if we exclude the sampled records from the population to obtain
an independence, the proportion of full-priced records is 0.53 for the non-sampled records
and is 0.65 for the sampled records. The dierence is signicant at the 1 percent level.
As our sample consists primarily of records of good pianists, this shows the interesting
fact that better records are actually cheaper, an evidence on the prevalence of good buys.
Note also that new releases constitute a signicant portion of the full-priced items. This
is a preliminary evidence on their commanding a higher price.
Table 3.6: Some Descriptive Statistics
Minimum Maximum Mean Std. Dev.
Popularity 1 1 1,372 729.95 435.30
Popularity 2 0 31 11.21 9.36
Quality 0.33 1,333 378.84 288.38
Company size 1 5,946 2,314.90 2,251.17
Note.No. of observations = 4, 467
Some descriptive statistics on the other measured features of the sampled records are
reported in Table 3.6. The records are issued by 231 record companies. Of course, the
sizes of the involved record companies as measured by the numbers of products supplied
cannot be smaller than one. The table shows that they on average issue 2,315 products.
Popularity 1 and popularity 2 are constructed by the RED method and the diploma
method respectively. Obviously, popularity cannot fall below one (zero) in the rst (sec-
ond) measurement. Among the 4,467 sampled records, the correlation between the two
measured popularities is 0.84. Thus, the practical dierence between them should be
very small.
As mentioned earlier, we have identied a subset of the sampled records which are
12
Due to missing data, the numbers of sampled records for the four price categories do not sum up to
4,467.
43
merely of piano works. It excludes those having track(s) in which (i) piano participation
is absent, (ii) non-piano soloist exists
13
or (iii) chamber music involving other instrument
is the recorded music. This sub-sample has 2,995 observations. It was found to have
similar features to the whole sample because the former is a signicant part of the latter.
Both the whole sample and the sub-sample have their own appeal. Our methods of
measuring music popularity and performance quality will perform better when they are
applied to the sub-sample. However, the sub-sample ignores those works in which piano
still has an important role such as violin sonata, cello sonata and numerous other chamber
music works. The whole sample can capture them better, apart from the advantage of
having a larger sample size.
3.4 Some Features of the Industry
The classical music record industry is populated by a large number of rms. As mentioned
earlier, the sampled records involve 231 record companies. The largest 10 supply 44
percent of the products. The Herndahl index of product shares is 331.4. These gures
suggest that this market is not very concentrated, contrary to what Hull (2004) says.
This is possibly because the good artists are matched with the large rms so that the
number of products supplied underestimates the revenue of large rms but overestimates
that of small rms.
Using the data on the sampled records, several bivariate relationships are studied
and are reported in Table 3.7.
14
Its second column shows the estimation result of that
product quality is regressed on company size. The coecient of company size is positive
and signicant. This is a preliminary evidence that record companies and artists are
positively matched.
15
It is therefore possible that larger record companies on average
13
A conductor is not regarded as a soloist by convention.
14
Similar results are obtained when popularity 1 is replaced by popularity 2 in the regressions.
15
Note that the positive correlation between company size and product quality should partly be caused
by artists choosing to join larger record companies. The causality link may also run from the LHS to the
RHS of the regression. The estimation result, which is obtained without considering such an endogeneity,
thus reects the matching pattern rather than merely the choices made by the record companies.
44
Table 3.7: Some Bivariate Relationships
Dependent Variable
Quality Popularity 1 Disc
Intercept 341.5711** 642.4609** 568.2992** -4.8489
(6.2307) (9.4535) (10.4582) (4.7796)
Company size .0161** .0379**
(.0019) (.0027)
Quality .4272**
(.0198)
Talent .0881**
(.0205)
Adjusted R
2
.0156 .0381 .0799 .2569
No. of obs. 4,467 4,467 4,467 296
Note.Disc is the number of discs supplied by a sampled pianist. For a given
product, it refers to the number of discs contained in the product multiplied
by the proportion of tracks that the pianist is involved in.
A unit of observation is a pianist in the regression of Disc, whereas it is a
product in the other three regressions.
White heteroscedasticity-consistent standard errors are in parentheses.
** denotes signicance at the 1 percent level.
derive more revenue from each of their records, so that the distribution of products is not
a good approximation of the revenue distribution.
We have also regressed popularity of the recorded music on company size and a signi-
cantly positive relationship is found. The third column of Table 3.7 reports the estimation
result. The positive correlation suggests that larger rms tend to record the more main-
stream works. This is consistent with the general impression that many small record
companies mainly produce special-interest repertoires. Such a positive relationship can
be attributed partly to the fact that artists and repertoires are also positively matched
because better artists work with larger rms. As shown in the fourth column of Table
3.7, popularity of the recorded music and performance quality do have a signicantly
positive relationship.
Apart from the relationships between the rms, artists and repertoires, it is also of
45
interest to see how the artists may dier in the number of discs supplied because this
may shed some light on the distribution of earnings. For a given product, this number is
measured by the number of discs contained in the product multiplied by the proportion
of tracks that the pianist in question is involved in. Among the sampled pianists, number
of discs supplied ranges from 0.12 to 208.80 and averages 19.13. Figure 3.2 is a scatter
plot of the combinations of talent and number of discs supplied for the sampled pianists.
The fth column of Table 3.7 shows that better-talented pianists supply more discs. This
reects the fact that better artists earn more and are more able to survive in the record
market.
TALENT
1400 1200 1000 800 600 400 200 0
N
O
.

O
F

D
I
S
C
S
250
200
150
100
50
0
Figure 3.2: No. of Discs Supplied and Talent
The skewness of the distribution of the discs to the sampled pianists is 3.7. The ten
pianists supplying most discs accounts for 26 percent of the total number of discs. The
Herndahl index of the disc shares is 118.6. These gures do not suggest that the top
artists are dominating the market, though they do supply disproportionately more discs.
The general impression that the superstar phenomenon prevails in the art of classical
music should therefore not be merely in the form of the number of products supplied
46
but also in the form of a deeper market penetration. Though our preliminary evidence
suggests that talented artists are more able to survive, whether artists earning is a
convex function of his talent as predicted by Rosen (1981) is dicult to test here because
a cardinal measurement of artistic quality is lacking.
It is also of interest to see what characteristics re-issues have. Table 3.8 gives a logit
estimation result with the underlying binary outcomes being one if the product is a re-
issue and zero if it is a rst release. The two popularity indices are separately incorporated
because they are highly correlated.
Table 3.8: Some Characteristics of Re-issues
Variable Model 1 Model 2
Intercept -5.7755** (.3747) -5.1072** (.3650)
Quality .6670** (.0601) .6648** (.0603)
Company size .0729** (.0220) .0758** (.0219)
Popularity 1 .9856** (.0300)
Popularity 2 .1129** (.0330)
Participation rate -.8581** (.0922) -.8654** (.9227)
Box dummy 1.1949** (.0823) 1.1882** (.0856)
Log likelihood -2694.09 -2693.87
Wald statistic 416.55** 416.98**
Pseudo R
2
.1023 .1023
No. of obs. 4,466 4,466
Note.The binary outcomes are 1 and 0 for re-issue and rst release
respectively. Participation rate is the proportion of tracks that the pianist
is involved in. The box dummy equals 0 (1) if the product consists of
(more than) one disc. Logarithmic form data are used for the explanatory
variables except the box dummy. For popularity 2, 1 is added before
taking the log.
Quasi maximum likelihood (Huber/White) standard errors are in paren-
theses.
** denotes signicance at the 1 percent level.
The odds ratio is found to depend positively on quality and popularity of the recorded
music, indicating that re-issues should be relatively more of recordings that were wel-
comed by the market. The positive and signicant coecients of company size show that
47
larger companies are more likely to re-issue their products. For example, the estimates
obtained from Model 1 suggest that a product issued by a record company having a one-
percent larger size has a .0173 higher probability of being a re-issue, when the company
size variable is evaluated at the mean.
Interestingly, the odds ratio was found to depend positively on the box dummy which
equals zero (one) if the product consists of (more than) one disc. For example, the
estimates obtained from Model 1 suggest that a box set item has a .2895 higher probability
of being a re-issue. Note that the music contained in the same box set are usually of
the same composer or of the same performer. A technological reason for the positive
relationship between the likelihood of observing a re-issue and the box dummy is that
young artists simply have not gone through a suciently long period of time to produce a
rich enough catalogue or to record, say, the 32 Beethoven piano sonatas. The coecients
of participation rate, which is the ratio of the tracks that the artist is involved in, are
negative and signicant. This reects the fact that there are also many re-issues that
comprise extracts of works by dierent composers and dierent artists. Since re-issues
are generally cheaper, this supports the argument that bargain products are targeted at
young consumers for enriching their knowledge relevant to the consumption.
48
Chapter 4
The Empirical Results on the
Characteristics of Record Prices
This chapter examines the empirical validity of the predictions derived in Chapter 2.
Our emphasis is placed on testing Propositions 2.2 to 2.4 because data on the rate of
music capital accumulation are lacking. Yet the causal evidence that mid-priced items
and re-issuing are much more common among records of classical or jazz music, which
presumably require more knowledge and past exposure in appreciating, than for pop
music should be a preliminary support for Proposition 2.1.
As the data on record prices, the dependent variable in the empirical analysis, are
of multiple discrete responses with an ordered structure, the ordered logit (or probit)
model is applicable. It treats the dependent variable as continuous de facto and predicts
at what levels changes will be observed. The binomial logit model will also be applied
to serve as a robustness check, with the price categories other than the full price being
grouped together.
1
This dichotomization emphasizes studying what factors would cause
a record to deviate from the full-price norm.
2
1
Applying the ordered probit and binomial probit models gives similar results. To avoid repetition,
we report the logit results only.
2
As shown later, the ordered logit results suggest that the three non-full price categories behave
similarly, justifying this way of grouping.
49
4.1 The Empirical Specications
The major theoretical implications derived in Chapter 2 state that the price of a record
depends negatively on the popularity of the recorded music and on the size of the issuing
company, and that re-issues are cheaper than rst releases. Testings of these propositions
are conceptually straightforward. Denoting the price of record i by y
i
, it can take on a
value from 1 to 4, with a larger number representing a higher price.
In the ordered logit, the observed category is y
i
= 1 if y

i

1
, y
i
= 2 if
1
< y

i

2
,
y
i
= 3 if
2
< y

i

3
, and y
i
= 4 if
3
< y

i
, where
y

i
= X
i
+
i
=
0
+
1
(Populitary)
i
+
2
(Company Size)
i
+
3
(Re-issue)
i
+x
i

4
+
i
is a latent variable with
i
being independently, identically and logistically distributed,
and x
i
being a vector of control variables including the quality of the product and a
dummy variable indicating whether it is a box set item. The probabilities of the dierent
price categories are
Pr(y
i
= 1) = Pr(
i

1
X
i
) = (
1
X
i
),
Pr(y
i
= 2) = (
2
X
i
) (
1
X
i
),
Pr(y
i
= 3) = (
3
X
i
) (
2
X
i
),
Pr(y
i
= 4) = (X
i

3
),
where () is the cumulative distribution function of
i
. The parameters of this model
are and
t
, t = 1, . . . , 3. They can be estimated by a maximum likelihood approach.
The main hypotheses to test can be
1
< 0,
2
< 0 and
3
< 0 because if the coecient
of a particular explanatory variable is negative, a higher value of the variable would raise
the likelihood of y
i
= 1 and lower the likelihood of y
i
= 4.
3
The eects on the likelihoods
of the intermediate price categories y
i
= 2, 3 can be positive or negative, depending on
where
1
,
2
and
3
locate.
3
Note that popularity and company size are measured by product counts but not quantities of records
sold or revenue derived. In addition, the theoretical implications are results of the interactions between
demand and supply forces, which suces using the reduced-form empirical specication and does not
call for adopting a simultaneous-equation approach.
50
4.2 The Empirical Results
As mentioned earlier, a motivation behind this study is that classical music records with
a higher quality do not necessarily command higher prices because bargains prevail in the
market. Our data also suggests this. Tables 4.1 and 4.2 report the ordered logit results
for the regression in which product quality is specied as the sole explanatory variable
of record price. Apart from showing that the (simple) relationship between quality and
record price is contrary to what the common notion suggests, we can compare the esti-
mated coecient of quality obtained here with those obtained when the addiction-related
variables are being controlled to examine whether the theoretical model can explain the
supply of good buys.
Table 4.1: Record Price and Quality: Ordered Logit Estimates
Whole Sample Sub-sample
Boundary points -4.1669*** (.2662) -4.1236*** (.3478)
-3.0451*** (.2577) -3.0134*** (.3380)
-1.2037*** (.2435) -1.2216*** (.3173)
Quality -.1888*** (.0413) -.1995*** (.0527)
Log likelihood -4596.05 -3130.30
Wald statistic 20.84*** 14.30***
Pseudo R
2
.0025 .0025
No. of obs. 4,417 2,927
Note.The sub-sample consists of products merely of piano works.
Logarithmic form data are used for quality to stabilize the data.
Quasi maximum likelihood (Huber/White) standard errors are in
parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10
percent levels respectively.
Results obtained from using the data of the whole sample and of the sub-sample
consisting of products merely of piano works are also presented, and the two sets of
data generate similar estimates. The estimated parameters and the estimated marginal
eects on the likelihoods of dierent price categories are given in Table 4.1 and Table 4.2
respectively. Table 4.1 shows that the coecients of the quality variable are negative and
51
signicant for both results obtained from the data of the whole sample and of the sub-
sample. The estimates therefore indicate that a higher quality shifts the price probability
density leftward, raising the likelihood of observing super budget price and reducing the
likelihood of observing full price. Loosely speaking, the ordered logit estimates suggest a
negative relationship between price and quality.
Table 4.2: The Estimated Marginal Eects of Quality
Variable y
i
= 1 y
i
= 2 y
i
= 3 y
i
= 4
Whole Sample
Probability .0433 .0788 .3453 .5325
Quality .0078*** .0124*** .0267*** -.0470***
(.0017) (.0027) (.0061) (.0103)
Sub-sample
Probability .0489 .0860 .3484 .5167
Quality .0093*** .0140*** .0265*** -.0498***
(.0023) (.0036) (.0075) (.0132)
Note.The estimated probabilities and marginal eects are evalu-
ated at the mean of the explanatory variable.
Standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10
percent levels respectively.
While the coecients do not directly tell what are the eects on the probabilities of
the intermediate price categories, given the locations of the boundary points the marginal
eects can be computed. Table 4.2 shows that both of the estimates obtained from
the whole-sample data and the sub-sample data suggest that a rise in record quality
would increase the probabilities of observing the intermediate price categories as well. In
addition, the values of the two sets of marginal eects are similar.
We also re-estimate the relationship by applying the binomial logit with the prices
being dichotomized into full price (1) and non-full price (0). The results are reported
in Table 4.3. The coecients of quality are signicantly negative, so the binomial logit
estimates also suggest that a higher quality reduces the probability of observing full price,
which is consistent with the ordered logit results.
52
Table 4.3: Record Price and Quality: Binomial Logit Estimates
Variable Whole Sample Sub-sample
Intercept 2.2375*** (.2898) 2.7079*** (.3381)
Quality -.3681*** (.0503) -.4553*** (.0578)
Log likelihood -3042.73 -2008.46
Wald statistic 53.63*** 61.94***
Pseudo R
2
.0122 .0176
No. of obs. 4,417 2,927
Note.The sub-sample consists of products merely of piano works.
Logarithmic form data are used for quality to stabilize the data.
The underlying binary outcomes are 1 if the record is full-priced
and 0 otherwise.
Quasi maximum likelihood (Huber/White) standard errors are in
parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and
10 percent levels respectively.
The empirical exercise above indicates that better records are likely to be cheaper.
This suggests that bargain records are indeed ubiquitous. Our next task is to put those
explanatory variables highlighted by the theoretical model into the regressions to see
whether they aect record prices in the predicted manner and whether the coecient
of quality will become positive. As mentioned earlier, the latter examination aims at
checking whether the strange negative relationship between record price and quality is
due to the forces of the variables highlighted by the theoretical model.
Tables 4.4 to 4.6 report the ordered logit estimates for the empirical model specied
in the previous section. Recall that two popularity indices are constructed and they are
highly correlated. We incorporate them in separate regressions to avoid the collinearity
problem and to facilitate a robustness check. As a result, given the set of data applied,
there are in the tables two estimation results whose underlying models dier only in the
popularity index used.
Consider rst the estimates obtained from using the data of the whole sample and
popularity 1. The re-issue dummy equals one (zero) if the product is a re-issue (rst
release). The coecients of the explanatory variables incorporated are all signicant. For
53
Table 4.4: Characteristics of Record Prices: Ordered Logit Estimates
Whole Sample Sub-sample
Model 1 Model 2 Model 1 Model 2
Boundary points -6.7018*** -5.9214*** -5.9563*** -5.2039***
(.2861) (.2707) (.3912) (.3657)
-5.5620*** -4.7826*** -4.8291*** -4.0767***
(.2771) (.2624) (.3827) (.3579)
-3.4753*** -2.700*** -2.8463*** -2.0963***
(.2620) (.2454) (.3661) (.3392)
Popularity 1 -.2033*** -.1960***
(.0274) (.0432)
Popularity 2 -.1740*** -.1649***
(.0312) (.0429)
Company size -.2880*** -.2966*** -.2598*** -.2684***
(.0223) (.0222) (.0264) (.0262)
Re-issue dummy -.9995*** -1.0012*** -.8855*** -.8926***
(.0664) (.0663) (.0812) (.0812)
Box dummy -.3444*** -.3417*** -.3060*** -.2981***
(.0647) (.0649) (.0782) (.0783)
Quality .0783* .0671 .1260** .1148*
(.0401) (.0409) (.0597) (.0606)
Log likelihood -4230.73 -4240.13 -2934.88 -2939.46
Wald statistic 750.52*** 738.67*** 429.30*** 430.11***
Pseudo R
2
.0818 .0798 .0647 .0633
No. of obs. 4,417 4,417 2,927 2,927
Note.The sub-sample consists of products merely of piano works. Re-issue
dummy equals 1 (0) if the product is a re-issue (rst release). Box dummy
equals 0 (1) if the product consists of (more than) one disc. Logarithmic
form data are used for the explanatory variables except the re-issue and box
dummies. For popularity 2, 1 is added before taking the log.
Quasi maximum likelihood (Huber/White) standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10 percent
levels respectively.
54
those of the variables emphasized by the theoretical model, their signs are, as expected,
all negative. Ceteris paribus, a higher popularity of the recorded music, a larger issuing
company or a re-issued recording will shift the price probability density leftward, reducing
the likelihood of y
i
= 4 and raising that of y
i
= 1. These empirical results on the
theoretical implications are obtained with the eects of the size of the product and the
product quality being controlled. Indeed, the coecients of these variables also deserve
notice.
The size of the product is represented by the box dummy, which equals one if the
product consists of more than one disc and zero otherwise. The coecient of this dummy
is signicantly negative, which is consistent with the general impression that box sets
are cheaper. This may reect the fact that quantity discount is practised to extract
consumers surplus or to capture businesses that would otherwise be shared by other
rms. Interestingly, the coecient of quality is positive and signicant, contrary to the
corresponding estimates in Table 4.1. Note that when the variables representing record
companies incentive to hook the consumers are incorporated, the presumed positive
eect of quality on price is not as over-shadowed as before.
4
This evidence supports the
hypothesis that bargain products are supplied to building up consumers music capital.
As shown by Table 4.4, the results are highly similar when we switch to apply popu-
larity 2 or the data of the sub-sample. The only dierence is that the coecient of quality
become insignicant in Model 2 with only the sub-sample data being used. Yet its sign
is still positive. The results should thus be fairly robust.
Tables 4.5 and 4.6 give the marginal eects of a change in an explanatory variable
on the probabilities of the dierent price categories. The two sets of data and the two
popularity indices generate similar results. As shown by the gures, the mid-price cat-
egory behaves similarly to the two cheaper price categories.
5
Consider for example the
estimates obtained from the whole-sample data with popularity 1 being applied. The
estimates suggest that the probability that a record is full-priced is lower for a re-issue
than for a rst release by .2443, and is lower for a record issued by a company that is
4
A similar result is obtained even if the box dummy is not incorporated.
5
Thus, we group the mid-price and the cheaper price categories (rather than the full-price) together
in the binomial logit presented below.
55
Table 4.5: The Estimated Marginal Eects in the Ordered Logit (Whole Sample)
Variable y
i
= 1 y
i
= 2 y
i
= 3 y
i
= 4
Model 1
Probability .0316 .0609 .3585 .5489
Popularity 1 .0062*** .0109*** .0333*** -.0503***
(.0010) (0017) (.0049) (.0073)
Company size .0088*** .0154*** .0471*** -.0713***
(.0010) (.0014) (.0039) (.0055)
Re-issue dummy .0347*** .0580*** .1516*** -.2443***
(.0028) (.0044) (.0114) (.0156)
Box dummy .0116*** .0198*** .0543*** -.0857***
(.0024) (.0040) (.0101) (.0161)
Quality -.0024* -.0042* -.0128** .0194*
(.0013) (.0022) (.0065) (.0093)
Model 2
Probability .0319 .0614 .3589 .5478
Popularity 2 .0054*** .0093*** .0284*** -.0431***
(.0011) (.0018) (.0051) (.0077)
Company size .0092*** .0159*** .0484*** -.0735***
(.0010) (.0014) (.0039) (.0055)
Re-issue dummy .0351*** .0584*** .1512*** -.2447***
(.0029) (.0045) (.0113) (.0156)
Box dummy .0116*** .0198*** .0536*** -.0850***
(.0024) (.0041) (.0101) (.0161)
Quality -.0021 -.0036 -.0109* .0166
(.0013) (.0022) (.0066) (.0101)
Note.The estimated probabilities and marginal eects are evaluated
at the means of the explanatory variables.
For the re-issue and the box dummies, the marginal eects are of the
discrete change from 0 to 1.
Standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10
percent levels respectively.
56
Table 4.6: The Estimated Marginal Eects in the Ordered Logit (Sub-sample)
Variable y
i
= 1 y
i
= 2 y
i
= 3 y
i
= 4
Model 1
Probability .0384 .0714 .3627 .5275
Popularity 1 .0072*** .0119*** .0297*** -.0489***
(.0017) (.0028) (.0066) (.0108)
Company size .0096*** .0158*** .0394*** -.0648***
(.0013) (.0019) (.0042) (.0066)
Re-issue dummy .0366*** .0577*** .1236*** -.2178***
(.0039) (.0059) (.0126) (.0193)
Box dummy .0123*** .0198*** .0443*** -.0763***
(.0034) (.0053) (.0112) (.0194)
Quality -.0047** -.0077** -.0191** .0314**
(.0023) (.0038) (.0089) (.0149)
Model 2
Probability .0387 .0718 .3632 .5264
Popularity 2 .0061*** .0101*** .0249*** -.0411***
(.0017) (.0028) (.0065) (.0107)
Company size .0100*** .0164*** .0405*** -.0669***
(.0013) (.0029) (.0042) (.0107)
Re-issue dummy .0372*** .0584*** .1239*** -.2195***
(.0039) (.0060) (.0126) (.0193)
Box dummy .0120*** .0193*** .0431*** -.0744***
(.0034) (.0038) (.0112) (.0195)
Quality -.0043* -.0070* -.0173* .0286*
(.0024) (.0038) (.0090) (.0151)
Note.The estimated probabilities and marginal eects are evaluated
at the means of the explanatory variables.
For the re-issue and the box dummies, the marginal eects are of the
discrete change from 0 to 1.
Standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10
percent levels respectively.
57
one percent larger by .0713.
We have also estimated the relationships by applying the binomial logit model. The
estimated coecients and marginal eects are reported in Tables 4.7 and 4.8 respectively.
The results are basically consistent with those obtained from the ordered logit, except
that the coecient of popularity 2 is insignicant (but still negative) for the sub-sample
data.
6
The estimated coecients conrms that that popularity of the recorded music, size
of the publishing company and re-issuing also exert a negative inuence on the probability
that the record is full-priced.
Although the coecients of quality are still negative, their magnitudes are smaller
than when quality is specied as the sole explanatory variable of record price. It may be
argued that the motive to addict the consumers does not give a full explanation because
these coecients are still negative. However, we cannot conclude this from the estimates
obtained here. Recall that the re-issue dummy is not measured without error, which
renders it unable to capture fully the motive that we emphasize. In addition, we have
not controlled for the inuences of the fact that new releases are priced at a premium
for their employing the state-of-the-art recording technology, while it is generally agreed
that artists of the previous generation are better. These other factors could also have
caused the negative coecients of quality appearing in Table 4.7.
Before we end this chapter, let us discuss the validity of some alternative interpreta-
tions on the characteristics of record prices. It may be argued that the negative eect of
popularity on price is due to the more intense competition associated with the mainstream
market rather than record companies cultivating the consumers taste. This begs the
question of what might have led to such an asymmetric degrees of competition, while the
producers can simply switch to producing fringe music whenever producing the essential
repertories is less protable. In other words, the degrees of competition in the markets
for dierent types of repertoires are actually the outcomes of the producers decisions.
And the theoretical model presented in Chapter 2 suggests that the incentive to addict
the consumers makes the producers willing to supply records of mainstream music at a
cheaper price and therefore generates a more intense competition.
6
This may be due to the inability of this popularity index to dierentiate composers who fall outside
the syllabus of the three piano diploma examinations.
58
Table 4.7: Characteristics of Record Prices: Binominal Logit Estimates
Whole Sample Sub-sample
Variable Model 1 Model 2 Model 1 Model 2
Intercept 4.7050*** 4.1215*** 4.3916*** 3.9214***
(.3284) (.3150) (.4240) (.4025)
Popularity 1 -.1598*** -.1322***
(.0308) (.0423)
Popularity 2 -.1189*** -.0716
(.0333) (.0442)
Company size -.3271*** -.3347*** -.2841*** -.2917***
(.0252) (.0251) (.0294) (.0292)
Re-issue dummy -1.4046*** -1.4063*** -1.2660*** -1.2721***
(.0714) (.0713) (.0882) (.0881)
Box dummy -.7443*** -.7437*** -.7351*** -.7351***
(.0861) (.0861) (.1032) (.1031)
Quality -.1027** -.1216*** -.1479** -.1745***
(.0507) (.0512) (.0666) (.0669)
Log likelihood -2559.64 -2567.09 -1744.04 -1747.93
Wald statistic 799.56*** 790.13*** 491.12*** 488.09***
Pseudo R
2
.1701 .1677 .1469 .1450
No. of obs. 4,466 2,927 4,466 2,927
Note.The re-issue dummy equals 1 (0) if the product is a re-issue (rst
release). The box dummy equals 0 (1) if the product consists of (more than)
one disc. Logarithmic form data are used for the explanatory variables except
the re-issue and box dummies. For popularity 2, 1 is added before taking the
log.
Quasi maximum likelihood (Huber/White) standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10 percent
levels respectively.
59
Table 4.8: The Estimated Marginal Eects in the Binominal Logit
Whole Sample Sub-sample
Variable Model 1 Model 2 Model 1 Model 2
Pr(y
i
= 1) .5395 .5385 .5169 .5160
Popularity 1 -.0397*** -.0339***
(.0076) (.0106)
Popularity 2 -.0296*** -.0179
(.0083) (.0111)
Company size -.0813*** -.0832*** -.0709*** -.0729***
(.0062) (.0062) (.0073) (.0073)
Re-issue dummy -.3373*** -.3377*** -.3060*** -.3073***
(.0158) (.0206) (.0199) (.0198)
Box dummy -.1838*** -.1836*** -.1808*** -.1808***
(.0206) (.0206) (.0245) (.0244)
Quality -.0255** -.0302** -.0369** -.0436***
(.0126) (.0127) (.0166) (.0167)
Note.The estimated probabilities and marginal eects are evaluated at
the means of the explanatory variables.
For the re-issue and the box dummies, the marginal eects are of the
discrete change from 0 to 1.
Standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10
percent levels respectively.
The fact that the size of the publishing company has a negative inuence on record
price may be interpreted as reecting the presence of signicant economies of scale. To
evaluate the merit of this argument, we estimate a regression in which record price is
specied to depend on company size, product quality, the box dummy and an interactive
variable, the product of company size and the re-issue dummy. Since there is no strong
reason for scale economies to be larger for a particular issuance type, the coecient of
the interactive variable should be insignicant. We do not incorporate other variables
that our theoretical model emphasizes in order to highlight the interpretation that scale
economies are at work as a competing hypothesis.
For simplicity, we apply the binomial logit model for this exercise. The estimates are
given in Table 4.7. The coecients of the interactive variable are signicantly negative
in both of the results generated by using the whole-sample data and the sub-sample
60
Table 4.9: The Interaction between Company Size and Issuance Type
Whole Sample Sub-sample
Intercept 3.6359*** (.3125) 3.5274*** (.3994)
Company size -.2606*** (.0244) -.2266*** (.0287)
Company size Re-issue -1.9904*** (.0103) -.1756*** (.0126)
Quality -.1740*** (.0492) -.2169*** (.0631)
Box dummy -.7357*** (.0869) -.7211*** (.1041)
Log likelihood -2574.30 -1752.82
Wald statistic 779.75*** 476.36***
Pseudo R
2
.1654 .1426
No. of obs. 4,466 2,927
Note.Re-issue is a dummy variable that equals 1 (0) if the product is a re-
issue (rst release). Box dummy equals 0 (1) if the product consists of (more
than) one disc. Logarithmic form data are used for the explanatory variables
except the re-issue and box dummies.
Quasi maximum likelihood (Huber/White) standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10 percent
levels respectively.
data. That is, the negative inuence of company size on price is signicantly larger
for re-issues than rst releases, contrary to what is expected by the economies-of-scale
interpretation. Unless there is a reason why re-issues would exhibit a stronger eect of
scale economies than new releases, the asymmetric responses do not t into the sale-
economies interpretation. However, this result can be consistent with our interpretation
that good buys are supplied to addict the consumers because, as shown by our theoretical
model, such an investment incentive is stronger among larger rms and re-issues are a
better means to achieve the purpose. It is thus not very surprising that in re-issuing a
record, a larger record company cuts its price more substantially than a smaller record
company.
For the relationship between record price and issuance type shown by the data, it may
be argued that similar to the book-publishing industry, an intertemporal price discrim-
ination may be practised. However, this interpretation is unlikely to be applicable. As
explained in Chapter 1, in the case of classical music records, re-issuing usually occurs
only after ten or even twenty year. The required dierences in the degrees of patience
61
of the consumers would be huge if the intertemporal price discrimination is indeed the
driving force.
The empirical ndings obtained here is consistent with the interpretation that a third-
degree price discrimination is practised in the sense that markets of records with dierent
demand elasticities are segmented and charged with dierent prices. In fact, this is exactly
what the theoretical model suggests. It says that although the record producers neither
can identify the identities of the consumers, nor prevent resales among them, so long as
the consumers have dierent preferences for or inclinations to dierent types of records,
an outcome that is similar to a price discrimination can be reached.
Note that the long run demand of young consumers in our theoretical model are
actually more elastic than the demand of old consumers because the future demand of
the former group of consumers will be also raised also a result of a current price reduction.
Records that are relatively more attractive to the young (old) consumers will be sold more
cheaply (expensively). This give rise to Propositions 2.2 and 2.4. In addition, as shown
in Chapter 2, a larger rm is more capable of aecting the stock of music capital, so
they face a more elastic demand and charge a lower price in equilibrium. Finally, when
music capital accumulates at a higher rate from the past consumption, the long run music
demand obviously becomes more elastic, thus a lower price will appear.
In sum, our theoretical model is perfectly consistent with the theory of the third-
degree price discrimination. Nevertheless, in explaining the empirical ndings present in
this chapter, instead of imposing which demand is more elastic, our model shows what
could have led to the elasticity and therefore the price dierences.
62
Part II
Investing in Reputation: Strategic
Choices in Career Building
63
Chapter 5
The Career Building Model
In the previous three chapters, we discussed how the property that music capital can be
built by an on-the-consumption training may aect record producers pricing decisions.
In this and the coming two chapters, we consider how dierent artists may follow dierent
strategies in developing their careers, given the property that the current demand facing
an artist depends positively on the demand that he has received in the past. This tackles
the issue of which type of music to produce.
Career development is a dynamic process. The ultimate career objective of a worker
is unlikely to be achieved on the rst day when he enters the market. In addition, current
career decision may aect what will be pursued in the future. An obvious reason is that
not only is relevant work experience required in many job applications, but it is also a
criterion of pay determination. Thus, if workers are forward looking, career decisions at
dierent stages will not be independently made.
Much attention has been paid by the literature to how workers are sorted into dierent
careers or jobs and the associated distribution of earnings. Roy (1953) and many other
works surveyed in Sattinger (1993) also indicate that the sorting process eected by the
market mechanism involves self-selection. Becker (1981) treats the mating of couples
as carried out in a marriage market and points out that the complementarity between
partners in the household will lead to a positive matching in which better males are
mated with better females. Kremer (1993) shows that strong dependence of the nal
outcome on any one particular task in a production process, as represented by the O-
Ring production function, will result in a positive matching in which workers with the
64
same ability are sorted together.
Rosen (1983) demonstrates that skillful workers are assigned to top positions in the
hierarchy and to larger companies because their positive productive externality can then
eect to more subordinates. In another work, Rosen (1981) suggests that when the
congestion problem can be better overcome by superior workers in the provision of a
product that has some public good features, they will receive a disproportionately larger
market and earning. These various works also shed light on how workers with dierent
skills or talents may choose their careers, however career has been treated as a static
concept, neglecting it as a development process. Chan and Suen (2002) attempt to
go beyond this limitation and to analyze how workers may strategically build up their
careers.
The rest of this chapter is devoted to presenting the model constructed by them. It
is built on the premise that because the force of social interactions is at work among
the consumers, the demand for a certain artists products depends on his reputation as
represented by the size of the past demand for his products. Thus, choosing to produce
the type of music that brings a larger current demand will generate not only a higher
current income but also a higher future income. Yet this music type may not coincide
with his artistic pursuit. As the incentive to invest in the reputation capital diminishes
over time, some artists may switch to perform a dierent type of music. This kind of
problem obviously cannot be analyzed in the static framework adopted by the various
works mentioned above.
5.1 The Theoretical Setup
The model considers an overlapping-generations environment in which the two kinds of
agents, consumers and producers, also live two periods in the record market. Producers
refer to recording artists, meaning that listeners and musicians transact directly.
1
In each
1
Complications arising from the presence of record companies, distributors, etc. are abstracted away.
Although record companies usually play a signicant role in deciding which type of music the new artists
should supply, such a simplication would not lose much of the generality. To them, establishing a good
reputation, which amounts to maximizing the revenue, is the major consideration. This obviously is
65
period, there is a constant inux of consumers and producers into the market, keeping
the populations of both groups constant over time. A consumer will purchase one disc,
which is recorded by one artist, in each period at the xed price of one. On the other
hand, an artist supplies one product variant in one period. The marginal output cost is
assumed zero. The music of a product belongs either to the mainstream (A) or the fringe
(B) repertoire.
2
The decision to each musician therefore boils down to choosing which
type of music to supply in each period.
3
It is assumed that young consumers would choose among the type A products only; a
portion 1 > > 0 of the old consumers would continue to purchase only type A records,
but the remaining portion 1 of them would switch to purchase type B records. This
corresponds to the fact that inexperienced listeners normally would start at exploring the
standard repertoire of, say, Bach, Mozart and Beethoven, instead of the works of, say,
Balakirev and Webern, though their taste for fringe music may develop later. Another
dierence between the two kinds of consumers is that young consumers are unaware of
or uninformed about the reputations of the artists while old consumers are knowledgable
in this aspect, which corresponds to the notion that music capital is accumulated by the
consumption itself.
4
This creates a dierence between their utility functions.
The utility that a disc delivers to a consumer depends certainly on the artists skill,
which is either q
H
or q
L
, with q
H
> q
L
. And the population of either group of artists
(i.e. high-skilled or low-skilled) is assumed constant over time. In addition to the artis-
tic quality, old consumers also care about the artists reputation as represented by the
demand he received in the previous period.
5
This is interpreted as a consequence of the
consistent with record companies objective. On the other hand, established musicians usually have a
say in what to play.
2
Similar to the theoretical model in Part I, here the popularity of a classical music piece is assumed
to depend on the composer but not the performer.
3
We can aord to abstract from the incentive to build up the consumers music capital here because
as indicated by Proposition 2.3, such an incentive is weaker for small-scaled producers.
4
The reputation of an artist refers to how welcomed he is by the audiences, and is not about how
likely he will honestly perform his part.
5
Note that because the price is normalized to one and the marginal output cost is zero, the demand
and revenue will take on the same value.
66
social interactions analyzed by Adler (1985) or Brock and Durlauf (2001).
6
That is, the
choice of a consumer of which musician to listen is very much aected by the choices made
by the others.
7
Obviously, a young artist, who has not recorded before, would not have
developed any reputation. The utility of a disc of a type i artist to a young consumer j
is
U
ij
= q
i
+
ij
and is
U
ij
= q
i
+ R
i
(m) +
ij
to an old consumer, where i = H, L, m = A, B and R
i
(m) is the past demand (or
revenue) for the type m product supplied previously by a certain type i artist. For
products recorded by young artists, R
i
(m) = 0 by denition. The presence of this past
demand term in old consumers utility corresponds to the assumption that the reputation
matters to him. Young consumers, however, do not share this trait, because having no
previous exposure they do not know how welcomed (or how reputable) dierent artists
are.
The taste heterogeneity among consumers of a given generation is captured by the
random variable
ij
. It is assumed to be unobservable to the producers and is therefore
random in their eyes.
8
A consumers
ij
are assumed to be independently and identically
distributed (across dierent products and consumers) according to the double exponential
distribution.
In each period, artists in the market can be classied into six groups according to their
past and current production decisions: (i) S
A
consists of the young artists who record
mainstream music; (ii) S
B
consists of the young artists who record fringe music; (iii)
S
AA
consists of the old artists who record mainstream music throughout their careers;
6
Both works model the dependence of individual demands on the market demand by incorporating
the latter as an argument in the individual utility functions.
7
This kind of forces may also explain why Dan Browns The Da Vinci Code or Stephen Hawkings
A Brief History of Time were so popular, while many of those who brought the book may not actually
read it.
8
Alternatively, we may consider that preference has some intrinsic randomness. But this interpretation
may be methodologically less appealing since it does not adhere to the stable preference assumption.
67
(iv) S
BB
consists of the old artists who record fringe music throughout their careers; (v)
S
AB
consists of the old artists who now record fringe music but played mainstream music
when young; and (vi) S
BA
consists of the old artists who now record mainstream music
but played fringe music when young.
There are four possible career paths for an artist to choose. He will pick the one
that maximizes his lifetime utility. Assuming no discounting, it is simply the sum of the
instantaneous utilities. The instantaneous utility that a type i young artist k derives
is R
i
(A) if he plays the mainstream repertoire and is R
i
(B) + s
k
if he plays the fringe
repertoire. Recall that R
i
(m) is the revenue (or demand) that he receives from supplying
a type m product, where m = A, B. The term s
k
can be positive or negative, depend-
ing on whether he has an adventurous inclination or prefers essential music works. In
other words, s
k
is the net non-pecuniary return or on-the-job consumption utility from
producing fringe music. It is treated as a random variable with density g(s) which is
symmetrical around zero with support [ s, + s]. Similarly, to an old artist of type i who
has supplied a type m product previously, the instantaneous utility is R
i
(mA) if he now
plays the mainstream repertoire and R
i
(mB) + s
k
if he now plays the fringe repertoire.
Given the forms of the consumer utilities, the assumed distribution of
ij
implies
that the choice probabilities follow a logistic form.
9
For simplicity, the parameter in the
double exponential distribution is assumed to be one. The associated revenues of dierent
production decisions can accordingly be calculated. If an artist produces A, there are two
possible sources of demands, young consumers and old consumers, while the production
of B has only one.
Consider a young artist who plays A, he has to compete with other artists in S
A
, S
AA
and S
BA
. If his skill is q
i
, then
T
i
1
=
Ne
q
i

j=H,L

kS
A
e
q
j
k
+

j=H,L

kS
AA
e
q
j
k
+

j=H,L

kS
BA
e
q
j
k
is the young consumers demand for his product, where N, which is a large number, is the
consumer population of one generation. The denominator is expressed in such a manner
9
For an exposition on the linear random utility model in the discrete choice analysis, see Anderson,
de Palma and Thisse (1992), Chapter 2.
68
to correspond to the three groups of artists producing A. This same artist would have
T
i
2
=
Ne
q
i

j=H,L

kS
A
e
q
j
k
+

j=H,L

kS
AA
e
q
j
k
+R
j
k
(A)
+

j=H,L

kS
BA
e
q
j
k
+R
j
k
(B)
as the old consumers demand for his product. Note that only a portion of old consumers
will buy type A product, hence N is multiplied by ; and that the reputation matters
to old consumers, resulting in the presence of the R
j
k
(m) terms in the sums for groups
S
AA
and S
BA
. The total demand for the work of or the revenue to a young artist who
produces A with skill q
i
is simply R
i
(A) = T
i
1
+ T
i
2
.
To an old artist who now plays A with skill q
i
, the current demand he receives from
the young consumers is also equal to T
i
1
as products of young artists or old artists do not
dier to young consumers, keeping other factors constant. Nevertheless, given that the
artist recorded a type m product before, where m = A, B, the demand of old consumers
for his current product would be
Ne
q
i
+R
i
(m)

j=H,L

kS
A
e
q
j
k
+

j=H,L

kS
AA
e
q
j
k
+R
j
k
(A)
+

j=H,L

kS
BA
e
q
j
k
+R
j
k
(B)
,
equalling e
R
i
(m)
T
i
2
. Old artist reaps the benet from his reputation capital through the
existence of the R
i
(m) term in the numerator. And the total demand for his product is
R
i
(mA) = T
i
1
+ e
R
i
(m)
T
i
2
in his second career period.
Note that R
i
(mA) R
i
(A) = (e
R
i
(m)
1)T
i
2
> 0, indicating that an old artist,
regardless of his past production decision, would earn more than a young artist, given
that both have the same skill level and produce A currently. This is because old artists
established reputation yields them a deeper penetration in the market of old consumers,
as represented by the fact that in their demand e
R
i
(m)
> 1 multiplies T
i
2
, their demand
for a type A product of a young artist with skill q
i
.
Unlike type A product, only a portion of the old consumers purchase type B records.
No revenue from producing B is generated by young consumers demand. If a young
artist with skill q
i
plays B, the demand for his record is
R
i
(B) =
(1 )Ne
q
i

j=H,L

kS
B
e
q
j
k
+

j=H,L

kS
AB
e
q
j
k
+R
j
k
(A)
+

j=H,L

kS
BB
e
q
j
k
+R
j
k
(B)
because he faces competition from other artists in S
B
, S
AB
and S
BB
. It can be easily
shown that an old artist, who played m before, now producing B earns R
i
(mB) =
69
e
R
i
(m)
R
i
(B), m = A, B. Again, the term e
R
i
(m)
appears multiplicatively, reecting the
advantage that old artists possess.
Under the assumption that only part of the old consumers would listen to fringe
music, market A has a larger size than market B. But to certain young artists market A
does not necessarily bring them a larger current demand, and hence a higher reputation,
because the distributions of talents and reputable artists to the two markets also matter.
The next section discusses how artists are sorted into the two markets in their early and
late careers.
5.2 Implications on Career Choices
In choosing which career to pursue, forward-looking (young) artists will take into account,
along with other factors, the eect of the rst-period choice on the reputation and thereby
the returns of dierent prospective future careers. They thus have to decide not only
which music pieces to produce, but also the time the products are supplied to the market,
making the career decision an economic dynamics.
Given the market environment specied in the previous section, four implications on
artists career choices in a steady state were derived.
10
Proposition 5.1 If in the rst period an artist chooses to produce B, then he will not
switch to produce A in the second period.
There are conceptually four possible career paths, but the path B-A is ruled out by the
theory because it cannot be an optimum and therefore will not be pursued by any rational
artist. Consider someone who chose B-A. Two factors must hold: (i) his preference for
fringe music s is neither too strong nor too weak to make B-B or A-A optimal, and (ii)
market B is a better place for him to establish his reputation (i.e. the demand for his
product is larger).
The second factor indicates that market B generates him more income. Because
he does not very much dislike playing B (i.e. the rst factor described above), he will
continue to produce B in the second period. On the other hand, if he does not possess
10
The derivations can be found in Chan and Suen (2002).
70
an income advantage in producing B, but his preference for it drives him to play it, he
should engage in such an artistic pursuit in the second period instead. By doing so, he
could benet from obtaining a better reputation in the rst period and therefore a higher
income in the second period, while both A-B and B-A careers generate one s in the
life-cycle.
Proposition 5.2 If the market for B is not too small ( < 1 ), then there will be
some artists choosing career path A-B.
Recall that the market for mainstream repertoire is larger, enabling it to support a larger
number of producers. Some of them would be those young artists who are inclined to play
fringe music but nd market A rewarding them a larger instantaneous demand.
11
They
are discouraged to produce type B product in the rst career period because market A
is the proper place for establishing their fame, besides the direct benet from a higher
instantaneous income it brings. Thus, they are investing in the reputation with the
sacrice of their artistic interest in fringe music.
When they enter their second career period, building up the reputation capital is
no longer a consideration in making the current production decision. They may earn a
higher income in market A because of its larger size. But if < 0.5 so that more old
consumers listen to fringe music, the reward to their previous investment in reputation
is larger by choosing to produce B. So they still can earn a reasonably large income in
the fringe market. Absent the motive of investing in reputation in the later career, their
preference for playing fringe music may turn out to become strong enough to compensate
for the small loss in the current income, giving rise to the choice of the A-B career.
Proposition 5.3 High-skilled (Low-skilled) artists have a higher (lower) propensity to
choose A in the rst period.
Certainly, all artists desire a good reputation. Market A has a larger size and will therefore
have more producers in equilibrium, meaning that competition there is more intense than
in market B. This makes it disadvantageous for low-skilled artists to begin their careers
11
Of course, their adventurous inclinations supposedly are not strong enough to make path B-B optimal
in the present discussion.
71
in market A. However, the more intense competition does not aect talented artists by
the same degree. They therefore have a comparative advantage in getting businesses
in market A. These generate a positive assortative mating between artistic talent and
popularity of repertoire in the performers early careers.
12
Proposition 5.4 If s is uniformly distributed, then high-skilled artists will have a higher
propensity to switch from market A to market B in the second period of their careers.
During the course of their career development, artists will experience a change in the
relative attractiveness of the two markets caused by the reputation established from the
previous sales. As indicated by Proposition 5.2, this relative change motivates some
artists to switch from performing A to B, given that the market for type B products
is suciently large (i.e. < 0.5). Nevertheless, not all artists who produced A when
young will experience such a relative change by the same extent as their careers unfold,
generating dierences in their propensities to switch.
When the reputation is established, an old artist becomes more competitive in both
markets. Note that the return on reputation derives merely from the purchases made
by old consumers. The condition that there are more old consumers listening to fringe
music than to mainstream music implies a larger return on reputation from the fringe
market in equilibrium, which may be called the eective market size eect.
13
Further-
more, artists who have earned a good reputation will receive a larger market share in
the less competitive fringe market. This may be called the market penetration eect.
These two eects are also increasing and convex in artists talents, the increase in relative
attractiveness of market B is therefore larger to high-skilled artists than to low-skilled
artists, initiating relatively more talented artists to move from market A to market B.
These four propositions on forward-looking artists career decisions are generated
through the interactions between their talents, preferences for playing dierent types
12
Of course, there are talented artists who have a very strong preference for fringe music to start in
market B and low-skilled artists who very much dislike fringe music to start in market A.
13
Since young consumers are uninformed about artists past demands, it is the number of old consumers
in a market that governs the return on reputation derivable from there.
72
of music and the market sizes of dierent repertoires. They demonstrate that artists with
a better talent can more successfully establish their reputations in the mainstream, while
the less-talented ones should avoid this more competitive eld. Artistic preference may
disturb this matching pattern, yet it is not so substantial as to alter it altogether.
Some artists will stay where they started their careers. Nevertheless, career switch
from the mainstream market to the fringe market is possible, especially for the high-skilled
artists with a preference for fringe music. They chose in the early career to produce in
market A, where they can secure a high praise, in order to build up their reputation
and to switch to market B for satisfying their desires for fringe music. These various
implications can also be tested by empirical data.
The analysis here treats the contents of mainstream repertoire and fringe repertoire as
given and does not take into consideration the possibility that a well-celebrated performer
may be able to attract the consumers attention for whichever kind of works he plays.
However, as mentioned previously, this possibility is of secondary importance in the case
of classical music because unlike pop music, the classical repertoire has its very own
appeal to the listeners.
14
A single artists eort should be inadequate to re-dene the
content of the mainstream.
14
This has been pointed out in Section 3.2.3.
73
Chapter 6
The Sample of Recording Careers
A sample of recording careers is collected to examine the empirical validity of the theoret-
ical implications of the career building model presented in the last chapter. We describe
in this chapter the sampling criteria and how an artists talent and music popularity are
measured. Some general features of the sample will also be presented.
We recognize that an artists career also comprises concert performances, but the
lack of systematically collected data has forbidden us to consider them. Nevertheless,
career moves exhibited by artists recorded music should still be suciently representative
because the unlimited capacity of this medium in reaching the audiences could make the
earnings sensitive to the production strategies.
6.1 The Sampled Artists and Their Recording Ca-
reers
The sample is restricted to the careers of only one kind of musicians in order to facilitate
a more meaningful and informative comparison. The pianist is chosen for two reasons.
First, it should have the largest population among dierent kinds of instrumentalists. This
is essential because, as we will see, various data limitations and the ways through which
the propositions are tested also reduce signicantly the eective number of observations.
Second, piano has a broad repertoire, enabling reasonable classications of the repertoire
into mainstream and fringe types.
74
Unlike testing the model of record prices, it is unnecessary to restrict the sample here
to consider only talented pianists. Yet other constraints rendered including all pianists
who have made records infeasible. For each sampled pianist, we need the information on
the contents of the records that he made and the times at which they were rst issued
their career paths. Since re-issues are mere continuations of past products, they are not
considered as reecting artists career moves. Due to the lack of systematically collected
information on rst releases of the distant past, it is quite impossible to include earlier
artists into the sample; the exact sampling criteria are explained later.
1
We rely on three sources of information to construct the sampled pianists recording
careers: the RED cd-rom; the Gramophone music magazine; and the Gramole. As
described in Chapter 3, the RED cd-rom contains information on classical music CDs
circulating in the U.K.
2
In each issue of the Gramophone, information on the records
released in the corresponding period is printed. The Gramole contains some basic
information on the records that were reviewed by the Gramophone. The latter two
sources are used to supplement the use of the RED cd-rom. The major drawback of
using the Gramole is that items which are not reviewed by the Gramophone cannot be
found. For the Gramophone, it does not report the performers and the music piece of
each track of the product. This would make the measured popularity inaccurate, and
some of the sampled pianists products may be omitted. Despite such problems, they
help recover, though imperfectly, the information needed on deleted records and identify
which records reported by the RED cd-rom are rst releases.
3
The sample considers the set of pianists who started their recording careers in or after
1983, the earliest issue year among the CDs with piano performance in the RED cd-rom.
We therefore exclude pianists who died before 1983 or those who had released records
1
Also, including their recording careers into the sample is not very desirable. As pointed out by Day
(2000), the very limited storage capacity of the earlier software formats has once constrained artists to
record only short pieces, which may bias the measured career decisions.
2
Recall that we use the May 2001 edition.
3
Earlier issues of the Gramophone do not indicate whether a record is a re-issue and the Gramole
provides information only for reviewed CDs.
75
before 1983.
4
These exclusions serve to make our sample consist of only those whose
career paths can be reasonably recovered.
5
On the other hand, though we cannot nd
all the deleted records and identify the corresponding rst releases of the re-issues from
the Gramophone and the Gramole, the set of records captured should consist largely of
rst releases because we consider contemporary artists only.
6
Our sample consists of 1,453 pianists, including the very familiar names such as
Evgeny Kissin and Mitsuko Uchida. Their recording careers are recovered by nding
(i) their circulating records from the RED cd-rom; (ii) their records reported by the
Gramophone but not by the RED cd-rom (i.e. these are their deleted records); and (iii)
eliminating the re-issues captured in steps (i) and (ii) for those sampled pianists with
four or more records with the aid of the Gramole. Step (iii) is carried out only for this
subset of pianists because we do not use those with fewer than four records to examine
the dynamic career features. Records which are joint products of a sampled pianist and
other artists are not excluded from the sample because they are also part of his recording
career.
A histogram of the number of records that the sampled pianists have is depicted in
Figure 6.1. Its vertical axis measures the number of sampled pianists and its horizontal
axis measures the number of products. A sampled pianist on average has 3.25 products
and the range is 1 to 47. The distribution shown in the gure is skewed, consistent with
4
Indeed, it is impossible to trace past records up to the early 19
th
century when records rst entered
the retail business. We checked the volumes of the Gramophone covering the ten-year period before 1983
to eliminate those having records issued in this period and resort partly to the assumption that an artist
will not abruptly re-enter the market after a long period of absence. We supplement this by further
eliminating those who have (i) record information reported by the 1980s International Whos Who in
Music & Musicians Directory; (ii) circulating records with recording year 1973 or before as reported by
the RED cd-rom; or (iii) non-full price circulating records with the recording year lying in the period
1973-80. The rationale behind criterion (ii) is that a CD containing records taped long ago is likely to
be made by earlier artists. For criterion (iii), CDs with such prices recorded in the LP-cassette period
are likely to be re-issues of the earlier artists.
5
Since systematic information on earlier rst releases (not of the CD format) are lacking, recovering
recording careers of the earlier pianists is hardly possible.
6
Recall that re-issuing does not take place shortly after the rst issuing.
76
NO. OF PRODUCTS
45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
1000
800
600
400
200
0

Figure 6.1: Numbers of Products of the Sampled Pianists
the corresponding result in Section 3.4.
The distribution of the sampled records to the four price categories is given in Table
6.1. As some price information are missing, the total of the four is not 4,732, the num-
ber of sampled products.
7
Note that most sampled products are full-priced. The price
homogeneity assumption underlying the theoretical model is met. In addition, this price
category shares an even larger proportion here than in the sample considered by Table
3.1, which should be due to the fact that re-issues have been largely, if not totally, ltered
out by the sampling rules employed.
6.2 The Measurements
In order to test the implications of the career building model, we need to measure the
talents (or skill levels) of the sampled pianists and the popularities of their recorded music.
7
The actual numbers of products should be lesser than 4,732 because products that are jointly pro-
duced by more than one sampled pianist are double-counted. Yet this kind of products are not many
in the sample.
77
Table 6.1: Prices of the Sampled Products
Price Category Recommended Price No. of Products
Full above 9.99 3,692
Mid 6.99 9.99 354
Budget 4.99 6.99 189
Super Budget below 4.99 381
There are similarities and dierences in the measurement methods employed, compared
with those employed in Part I.
6.2.1 Pianists Talent
Conceptually, we can use the same method as in testing the record pricing model to
measure talent. Yet the New Grove Dictionary of Music and Musicians, 2
nd
ed. is not
where the sampled pianists are drawn in the current case, other measurements can also
be employed.
Here, six qualitative methods are used and a pianist is regarded as high-skilled in the
corresponding talent measurement if he has an independent entry in (i) the New Grove
Dictionary of Music and Musicians, 2
nd
ed., (ii) A Dictionary of Pianists, (iii) the Bakers
Biographical Dictionary of 20
th
Century Classical Musicians, (iv) the International Whos
Who in Music & Musicians Directory (various volumes)
8
; or earned a prize in (v) a major
piano competition or (vi) a piano competition (major competitions included).
9
Appendix
A lists the music competitions considered. A competition is classied as a major one if it is
a member of the World Federation of International Music Competition. The prominence
of this federation is evidenced by the fact that the renowned Chopin International Piano
Competition and International Tchaikovsky Competition are also its members.
8
The used volumes pertain to the years 80, 88, 92/93, 96/97 and 00/01. The corresponding time span
is about the same as the period that the issue dates of the sampled records cover.
9
It may be argued that whether a certain dictionary or biography would include a certain pianist may
depend to some extent on his recording career. How and to what extent this may systematically bias our
test results are uncertain. However, using the criteria derived from the outcomes of piano competitions
do not give rise to the same potential problem.
78
Table 6.2 gives the numbers of high-skilled sampled pianists pertaining to the six
dichotomous talent measurements. The WW measurement classies 25 percent of the
sampled pianists as high-skilled. Under other criteria, the numbers are even smaller.
This conforms to the fact that there should not be many stars.
Table 6.2: Numbers of High-skilled Sampled Pianists
NG DP BB WW MC C
No. of Sampled Pianists 39 30 28 367 81 89
NG: New Grove Dictionary of Music and Musicians, 2
nd
ed.
DP: A Dictionary of Pianists
BB: Bakers Biographical Dictionary of the 20
th
Century Classical Musicians
WW: International Whos Who in Music and Musicians Directory
MC: Major piano competitions
C: Piano competitions
Conceptually, we may also adopt the quantitative talent measurement that has been
employed in Part I: the length of the column description of the pianist in the New Grove
with zero being assigned to those not appearing in this encyclopedia. But it is practically
not very desirable in the current case. Among the 39 sampled pianists with a New
Grove column, their column lengths range from 111 to 4,749. Figure 6.2 displays the
distribution. Its vertical axis measures the length of the biographical descriptions and
its horizontal axis orders the sampled pianists according to their column lengths. Two
pianists receive exceptionally high scores due to their being composers as well because
the New Grove would devote extra spaces to describe composition styles. We abandoned
this measurement method to avoid possible biases. Yet Figure 6.2 conveys a skewed
distribution in the sense that only a few of the 39 pianists has a column length exceeding
300.
The six (dichotomous) measurements employed should not be uncorrelated. Table 6.3
reports their pairwise correlations calculated by the sampled pianists measured talents.
Their all being positive should not be very surprising as they are just alternative ways to
measure the same thing. Were negative correlations obtained, they might be incompat-
79
SAMPLED PIANISTS
40 30 20 10 0
C
O
L
U
M
N

L
E
N
G
T
H

I
N

N
G
5000
4000
3000
2000
1000
0

Figure 6.2: Biographical Lengths of the 39 Sampled Pianists in the New Grove
ible with each other in application. The correlation between MC and C is particularly
high because C subsumes MC. The fact that winners of non-major competitions in the
sample are quite few causes us not to adopt it as an independent measurement.
Table 6.3: Correlations of the Talent Dummies
NG DP BB WW C MC
NG 1 - - - - -
DP .1264* 1 - - - -
BB .3789* .1909* 1 - - -
WW .3672* .1474* .3106* 1 - -
C .1687* .0053* .2356* .2742* 1 -
MC .1434* .2179* .2060* .2351* .9512* 1
Note.No. of observations = 1,453.
* denotes signicance at the 5 percent level.
80
6.2.2 Popularity
As indicated in Chapter 5, the popularity of a classical music piece depends very much
on the composer. And the method of measuring the popularity of his work is to count
the number of circulating products containing his works. This can be checked from the
RED cd-rom. Recall that our sample includes products containing tracks on non-piano
music.
10
These mixed products are not excluded because the choice of music may reect
the strategy in marketing the pianists. Accordingly, we have not excluded works involving
no piano performance in measuring the composers (or his works) popularity here, unlike
the treatment in Part I. Table 6.4 lists the 34 most popular composers, showing that the
very familiar names also receive a very high rank.
For a given product, its music popularity is measured by the natural logarithm of the
average number of circulating products of the composers of the recorded music.
11
If we use
the average number of circulating products directly, as will be seen in the next chapter,
its very skewed distribution would cause many sampled pianists being mis-classied as
engaging in the production of mainstream music.
10
Although it is possible that a product which is not entirely recorded by the pianist in question is
included as part of his career, it turns out that the sampled pianists actually contributed signicantly
in most of the sampled records. Consider the ratio of the number of tracks that were recorded by the
pianists to the total number of tracks, 63 percent of the sampled records have this ratio higher than 0.9
and 70 percent of them have it being higher than 0.5.
11
Tracks of works of anonymous composers are ignored.
81
Table 6.4: The 34 Most Popular Composers
Composer Circulating Products Composer Circulating Products
Mozart 3,329 Richard Strauss 922
J. S. Bach 2,820 Rachmaninov 829
Beethoven 2,550 Rossini 826
Schubert 1,928 Ravel 796
Brahms 1,785 Vivaldi 772
Verdi 1,590 Bizet 749
Tchaikovsky 1,487 Prokoev 731
Handel 1,233 Saint-Saens 695
Schumann 1,206 Gounod 678
Wagner 1,058 Shostakovich 671
Haydn 1,039 Donizetti 666
Chopin 1,006 Elgar 624
Dvorak 1,002 Greig 605
Puccini 1,001 Faure 576
Mendelssohn 999 Massenet 549
Liszt 998 Mahler 534
Debussy 942 Sibelius 517
82
Chapter 7
The Empirical Results on Career
Building Behavior
This chapter examines the empirical validity of the theoretical implications of the career
building model, using the sample of recording careers described in the last chapter. Fol-
lowing the theoretical model, our empirical procedures dichotomize an artists career into
two stages and repertoires into mainstream and fringe types, except when testing Propo-
sition 5.3. Before presenting the empirical results, we dene the empirical counterparts
of the two career stages and the two types of repertories.
7.1 Career Period and Repertoire Type
Let us begin with the dichotomization of career life. The rst career period of a sampled
pianist is dened as the ve-year period following the release of his rst product. Records
with his participation released in this period are his rst-period products, while the later
products constitute his second-period production. Not all sampled pianists have recording
careers of longer than ve years. The number of those who have is 332. The others are
regarded as having only the rst career period. Some of them may still be going through
the early career stage and some of them may have dropped out of the record market
already.
Section 6.2.2 described how the popularity of the music pieces contained in a product
is measured. Based on this, a sampled pianist is said to be engaging in the production
83
of type A (B) music in a given career stage if the average popularity of his products in
this period is higher (lower) than the threshold 6.8480. It is the higher quartile of the
popularities of the products in our sample, lying between the popularities of Debussy and
Richard Strauss.
1
As mentioned in Section 6.2.2, we use the logarithmic transformation
in order to avoid using a skewed popularity index. Otherwise, a pianist who produced
a number of fringe records and one mainstream record in a given period may still be
classied as playing type A music, which obviously is misleading.
The exact contents of the mainstream and the fringe as divided by this threshold may
not conrm to everyones standard. Some may regard it as too high to exclude Rachmani-
nov from the mainstream. However, setting a higher threshold aords a sharper contrast
between the dened mainstream and fringe markets so that the inuence of talent can be
more transparent, which is essential for testing the model of career building. Although
the classications discussed above involve arbitrariness to some degree, as will be seen
later slight changes in the above denitions actually would generate similar empirical
results.
7.2 The Empirical Results
Except for Proposition 5.3, the theoretical implications of the career building model
cannot be tested by the data on pianists who have only been through the rst career
period. In testing these implications, apart from excluding them, we consider only those
having issued four or more products in order to obtain a more accurate picture about the
dynamic pattern of artists career moves. For Proposition 5.3, the observed careers of all
sampled pianists can be used because it is concerned merely with the rst-period move.
There are 242 sampled pianists who have both career periods and have made four or
more records. Recall that we are restricted to consider only contemporary pianists. The
fact that the set of sampled pianists with an established career is a fairly small fraction
of all sampled pianists should not be very surprising. Table 7.1 reports their measured
talents based on the six dichotomous appraisal methods. Compared to the gures in
Table 6.2, we can see that while this set of pianists constitutes only 17 percent of the
1
See Table 6.4 in the last chapter.
84
total number of sampled pianists, it already comprises most of the talented ones, except
when applying the WW criterion which, as mentioned in Section 6.2.1, identies many
more pianists as talented than any other measurement method does.
Table 7.1: Numbers of Talented Established Pianists in the Sample
NG DP BB WW MC C
No. of Established Pianists 33 25 23 77 51 58
NG: New Grove Dictionary of Music and Musicians, 2
nd
ed.
DP: A Dictionary of Pianists
BB: Bakers Biographical Dictionary of the 20
th
Century Classical Musicians
WW: International Whos Who in Music and Musicians Directory
MC: Major piano competitions
C: Piano competitions
Table 7.2 presents some general career features of the 242 established sampled pianists.
We measure career length in terms of months by the length of the interval between the
issue date of the pianists rst record and May 2001, at which time records that were
circulating are reported in the version of the RED cd-rom that we use. Note that the
242 pianists on average have been in the record market for more than ten years. Their
observed career moves should be informative.
Table 7.2: Some General Career Features of the Established Sampled Pianists
Min. Max. Mean Median Std. Dev.
No. of Records 4 47 9.18 7 6.97
Pop. of the Recorded Music 0 8.11 5.32 5.82 1.95
Career Length 70 222 127.64 122 32.73
Finally, Table 7.3 reports the distribution of the products of those established pianists
to the four price categories. It basically conforms to the distribution displayed in Table
6.1. Again, the absolute majority of the products are full-priced. Let us now move on to
85
present the empirical results on the theoretical implications of the model.
Table 7.3: Prices of the Products of the 242 Established Pianists
Price Category No. of Products
Full 1,891
Mid 177
Budget 74
Super Budget 174
7.2.1 The Empirical Results on Proposition 5.1
The 242 established pianists are classied into four groups according to their career paths.
Table 7.4 lists the sizes of these groups. Most of the 242 pianists pursue the B-B career,
whereas the A-A career attracts the fewest. The number of pianists choosing career
path B-A is not zero, which is contrary to Proposition 5.1. However, this alone should
not be a strong opposition to the prediction because the size of the B-A group depends
mechanically on the popularity threshold. A higher threshold would cause the fringe
market to entail a boarder coverage. This would change the identity of some originally
B-A artists to B-B. Despite the possibility that some other factors may be at work,
this mechanical relationship inherent in the specications renders looking merely at the
number of B-A pianists in appraising Proposition 5.1 inappropriate because it can be
made very close to zero by adjusting upward the popularity threshold.
Table 7.4: Sizes of the Four Career Groups
A-A A-B B-B B-A
Number of Pianists 13 21 184 24
Recall that the intuition behind Proposition 5.1 is that if an artist attempts to capture
the utility from producing B for one period, he will do so in the second period, implying
86
that switching from A to B is more likely than from B to A. We may therefore test
Proposition 5.1 by comparing the proportions of the two kinds of switches.
Among the 242 pianists, 34 (208) of them launched their careers in market A (B). For
those choosing A in the rst period, .6176 of them switched to produce B in the second
period. The corresponding switch proportion for those choosing B in the rst period is
.1154 only. Their dierence, .5023 (with standard error .0862), is signicant at the one
percent level. The data thus indicate that artists who launched their careers in market B
are less likely to pursue a mid-career switch, comparing with those who started in market
A. This is consistent with the rationale behind Proposition 5.1 that pursuing the artistic
interest for fringe music at the later stage is more economical.
Table 7.5: Likelihoods of the Two Types of Career Switch
Variable (1) (2) (3) (4)
Intercept -.1445 -1.0280 .8637 -.0447
(.7934) (.7526) (.9046) (.8442)
Fringe (1
st
) -2.4410*** -1.9660*** -2.5269*** -1.9576***
(.4221) (.3879) (.4286) (.3988)
Career length .0043 .0063 -.0028 -.0000
(.0049) (.0048) (.0056) (.0054)
Log likelihood -96.65 -93.84 -85.75 -88.47
Wald statistic 37.13*** 29.02*** 35.24*** 24.23***
Pseudo R
2
.1685 .1351 .1805 .1186
No. of obs. 242 242 208 208
Note.Fringe (1
st
) is a dummy variable that equals 1 (0) if the artist produces
B (A) in the rst period.
Quasi maximum likelihood (Huber/White) standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10 percent
levels respectively.
It may be argued that we should control for the inuences of the artists career length
because a longer realized career may make a switch more likely to be observed. Consider-
ing the same set of sampled pianists as above, we may apply the binomial logit model to
incorporate career length into the analysis, where a unit of observation is still an artist.
87
The estimates are reported in Table 7.5. The underlying binary outcomes are one if a
career switch is observed and zero otherwise. We test whether the odds ratio depends
positively on the dummy variable which equals one (zero) if the artist played B (A) in
the rst career period.
The results of (1) to (4) are generated from alternative specications of the length of
the rst career period and the popularity threshold, facilitating robustness checks. In (1)
and (2), the rst career period lasts for ve years, whereas in (3) and (4) it lasts for six
years. The popularity threshold is reduced to include Rachmaninov in the mainstream
in (2) and (4). For the other two, the original threshold is maintained.
We can see that the coecients of the fringe dummy are all signicantly negative
and are insensitive to the alternative specications. This result suggests that artists
who produced B in their earlier career are less likely to switch than those who started
in the mainstream market, consistent with the result obtained earlier. In addition, the
coecients of career length are insignicant. A longer realized career therefore does not
necessarily make switching more likely.
7.2.2 The Empirical Results on Proposition 5.2
Recall that Proposition 5.2 states that there will be artists choosing the A-B career so
long as the fringe market is not too small. Although data on market sizes of dierent
types of repertoires are not available, they could be approximated by our popularity index
because a larger market size can sustain more record varieties.
2
As a result, we expect that the A-B artists would not produce the extremely special-
interest repertoire in their later career even though they have switched away from the
mainstream market. Otherwise, they would have to give up a large pecuniary return.
Based on this idea, Proposition 5.2 may be tested by comparing the popularities of the
recorded fringe music made in the second career period by the A-B pianists with those
made by the B-B pianists. Again, we apply the data on those 242 sampled pianists with
both career periods and four or more products.
The 21 A-B pianists and 184 B-B pianists reported in Table 7.4 produced, respectively,
2
Note that there is no barrier to entry in the markets of dierent types of repertoires.
88
74 and 754 type B records in the second period. The average popularity of the second
period type B products of the A-B pianists is 4.8131 and is 4.4015 for those made by the
B-B pianists.
3
The former is larger than the latter, and is signicant at the ve percent
level, by .4116 with a standard error of .2129. Thus, in the second period, the A-B
pianists indeed choose not to record pieces as fringe as the B-B pianists do, supporting
the hypothesis that the size of the fringe market matters for the viability of A-B as a
career choice.
Another evidence is also of interest. In the second period, the 21 A-B pianists on
average supply 2.1905 type A products and 3.5238 type B products, whereas the 184 B-
B pianists on average supply .8696 type A products and 4.0978 type B products. These
gures convey the fact that the A-B pianists still have a signicant part of their second
period production belonging to type A. This suggests that relative market size aects
how complete the switch is.
Table 7.6: The 2
nd
-period Fringe Products of the A-B and B-B Pianists
Variable (1) (2) (3) (4)
Intercept 4.3670*** 4.3067*** 4.1073*** 3.9516***
(.2586) (.2653) (.3076) (.3191)
Mainstream (1
st
) .4085* .3645* .5561*** .3835*
(.2118) (.2187) (.2131) (.2314)
Career length .0002 -.0002 .0014 .0015
(.0018) (.0018) (.0020) (.0021)
F statistic 1.88 1.39 3.58** 1.58
Adjusted R
2
.0021 .0011 .0076 .0053
No. of obs. 828 780 680 635
Note.Mainstream (1
st
) is a dummy variable that equals 1 (0) if the artist
produces A (B) in the rst period.
White heteroscedasticity-consistent standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10 percent
levels respectively.
The idea that the type B records made in the second period by the A-B pianists
3
The standard errors of these two estimates are .2037 and .0636 respectively.
89
are not as fringe as those made by the B-B pianists could be examined in a regression
framework as well. Consider the same set of type B products as before, we regress the
popularity of the recorded music on a dummy variable which equals one (zero) if the
product is made by an A-B (a B-B) pianist. The estimates are reported in Table 7.6.
4
Again, career length is incorporated as a control variable and alternative specications
of the popularity threshold and the rst-period length are attempted.
5
Let us begin with the results under specication (1). The coecient of the dummy
variable on career type is signicantly positive. It indicates that the A-B pianists indeed
choose to produce a less special-interest repertoire, which is consistent with Proposition
5.2 since the observations considered are the second period type B products of the A-B
and A-B pianists. However, career length was not found to have a systematic inuence
on popularity choices. Table 7.6 shows further that similar results are obtained under
other specications, so the results should be fairly robust.
7.2.3 The Empirical Results on Proposition 5.3
Proposition 5.3 states that a positive matching between repertoires and artists occurs in
their early career. We therefore consider the set of rst period products only.
6
Table 7.7
gives the estimates generated from a regression in which the popularity of the recorded
music of the product is the dependent variable and the various talent dummies and the
price of the product are the explanatory variables.
7
Here, price is dichotomized such that
it equals one if the product is full-priced and zero otherwise.
Consider the results reported in the upper part of Table 7.7 rst. They correspond
4
The standard errors reported in the Table are under the assumption that observations are indepen-
dent. We have also tried the assumption that observations involving the same artist are dependent. The
results are similar.
5
Specications (1) to (4) carry the same meanings as those in Section 7.2.1.
6
Records made by those with only the rst career period are included.
7
If we assume that observations involving the same artist are dependent in estimating the standard
errors, the coecients of the NG and DP dummies become insignicant. However, this is possibly due to
the collinearity problem because when the six talent dummies are incorporated in separate regressions,
their coecients were found be signicant.
90
Table 7.7: The Match between Repertoires and Talents in Artists Early Career
Variable Model 1 Model 2
5-year Specication
Intercept 5.6088*** (.0716) 5.6037*** (.0715)
NG .2967** (.1340) .3047** (.1339)
DP .3377** (.1609) .3504** (.1599)
BB .2231 (.1704) .2379 (.1699)
WW .5920*** (.0934) .6016*** (.0929)
C .7396*** (.1008)
MC .7851*** (.1015)
Price -1.0731*** (.0783) -1.0593*** (.0783)
F statistic 72.49*** 73.04***
Adjusted R
2
.0828 .0838
No. of obs. 3,264 3,264
6-year Specication
Intercept 5.6138*** (.0685) 5.6096*** (.0685)
NG .2812** (.1234) .2849** (.2849)
DP .1880 (.1550) .2005 (.1544)
BB .2606 (.1620) .2745* (.1615)
WW .5779*** (.0876) .5903*** (.0873)
C .7146*** (.0947)
MC .7481*** (.0957)
Price -1.0532*** (.0685) -1.0496*** (.0748)
F statistic 73.11*** 73.19***
Adjusted R
2
.0807 .0814
No. of obs. 3,490 3,490
Note.Price is a dummy variable that equals 1 (0) if the product is (not)
full-priced.
White heteroscedasticity-consistent standard errors are in parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10 percent
levels respectively.
91
to the specication that the rst career period lasts for ve years. Talent dummies
C and MC are incorporated in separate regressions because they are highly correlated,
hence the two models. For Model 1, the coecients of all but BB talent dummies are
positive and signicant. The insignicance of the coecient of BB possibly is due to
the collinearity problem because when other talent dummies are removed, it becomes
signicant. The estimates thus indicate that talented pianists tend to produce music
with a higher popularity in their early careers, conrming Proposition 5.3. In obtaining
these, the eect of price is controlled. Its coecient is negative and signicant, which is
consistent with our earlier results on the negative relationship between record price and
the popularity of the recorded music obtained in Chapter 4.
Model 2 diers from Model 1 in that MC instead of C is incorporated. Yet similar
results are obtained. This is expected because C and MC largely overlap. The lower
part of Table 7.7 reports the results under the six-year specication. The coecients of
DP become insignicant in both models. Again, this should be due to the collinearity
problem for they become signicant when other talent dummies are removed. Other than
this, we arrive at similar conclusions as to the match between repertoire and artists in
the early career.
7.2.4 The Empirical Results on Proposition 5.4
Proposition 5.4 states that A-B artists are more talented than A-A artists. To examine
this, we consider again the set of sampled pianists with both career periods and no less
than four records. Table 7.8 gives the ratios of high-skilled pianists for those choosing
the A-B and the B-B careers.
The six talent measurements all suggest that the A-A pianists on average have a higher
talent than the A-B pianists. Although some of the dierences between the proportions
of talented pianists are insignicant, the data basically do not conrm Proposition 5.4. To
control for the eect of heterogeneity in career lengths, we apply the logit model in which
the binary outcomes are one if the pianist pursues the A-B career and zero if he pursues
the A-A career to examine whether switching away from the mainstream market is more
likely for skillful artists. The estimates corresponding to specications (1)-(2) and (3)-(4)
92
Table 7.8: Talents of the A-A and the A-B Pianists
NG DP BB WW C MC
A-A pianists .3333 .4250 .3917 .5500 .6917 .6917
A-B pianists .1141 .2717 .1413 .4728 .3207 .2935
Dierence .2192* .1533 .2504** .0772 .3710** .3982**
(.1480) (.1680) (.1553) (.1758) (.1636) (.1621)
Note.Standard errors are in parentheses.
** and * denote signicance at the 5 percent and 10 percent levels respectively.
are reported in Tables 7.9 and 7.10 respectively. Again, C and MC are incorporated in
separate regressions to avoid the collinearity problem.
As shown in Tables 7.9 and 7.10, the coecients of the talent dummies are gen-
erally insignicant, so are the coecients of career length. The data therefore do not
support Proposition 5.4. Several reasons may have contributed to such an insignicant
relationship. Due to data limitations, the number of sampled pianists that can be used
here is around 30 to 40 only. A larger sample size might give a more complete picture.
In addition, our empirical procedure is unable to control for the inuence of preference
heterogeneity among the artists. This potentially can bias the estimated relationship.
Finally, a factor that may work in the opposite direction to what Proposition 5.4 sug-
gests is that to some artists the reason for switching is that they nally found that their
skills are not high enough to secure a good return on staying in the mainstream market.
If they can be identied empirically, the second period career moves of those started in
the mainstream market yet with dierent talents will be more clearly seen.
93
Table 7.9: Switch to Market B and Talent (Specications (1)-(2))
Variable (1) (2)
Intercept -.1496 -.1187 -1.1881*** -1.9773*
(1.1711) (1.1814) (1.1255) (1.1941)
NG -.5754 -.4729 -.5011 -.3499
(.9794) (.9713) (.8003) (.7651)
DP -.1371 -.0786 .8550 1.0453
(.9592) (.9836) (1.0748) (1.1738)
BB .4770 .3320 .4288 .2771
(.9662) (.9421) (.8489) (.7718)
WW .2174 .2018 -.5082 -.8245
(.9055) (.8799) (.6993) (.7080)
C -.9840 -1.4375*
(.8709) (.9301)
MC -1.1301 -1.8380**
(.8656) (.9272)
Career length .0070 .0070 .0163** .0174**
(.0072) (.0072) (.0078) (.0085)
Log likelihood -21.17 -20.92 -25.87 -25.05
Wald statistic 3.24 3.80 6.61 6.29
Pseudo R
2
.0639 .0752 .1289 .1565
No. of obs. 34 34 43 43
Note.The underlying binary outcomes are 1 if the pianist pursues the
A-B career and 0 if he pursues the A-A career.
Quasi maximum likelihood (Huber/White) standard errors are in paren-
theses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10 percent
levels respectively.
94
Table 7.10: Switch to Market B and Talent (Specications (3)-(4))
Variable (3) (4)
Intercept .1128 -.1258 -1.4419 -1.4380
(1.1543) (1.1686) (1.1604) (1.1769)
NG -.5298 -.4068 -1.1188 -1.0235
(.8562) (.8436) (.8945) (.8728)
DP -.3435 -.2712 .3709 .4741
(1.0091) (1.0372) (1.0916) (1.1335)
BB .3153 .1325 .4024 .2842
(.8675) (.8308) (.8295) (.8024)
WW .7875 .7400 .4328 .4155
(.8973) (.8601) (.7602) (.7469)
C -1.3804 -.9602
(.9605) (.8537)
MC -1.5016 -1.1713
(.9226) (.8859)
Career length .0047 .0049 .0111 .0113
(.0070) (.0072) (.0076) (.0078)
Log likelihood -22.04 -21.70 -24.66 -25.32
Wald statistic 3.63 4.30 3.97 4.42
Pseudo R
2
.0839 .0752 .0872 .1000
No. of obs. 36 36 39 39
Note.The underlying binary outcomes are 1 if the pianist pursues
the A-B career and 0 if he pursues the A-A career.
Quasi maximum likelihood (Huber/White) standard errors are in
parentheses.
***, ** and * denote signicance at the 1 percent, 5 percent and 10
percent levels respectively.
95
Chapter 8
Conclusions
The success or failure of a producer depends on the size of the demand that he gets.
A maximizing producer will therefore exploit every opportunity to strengthen it. In
considering what strategy to follow, he would take into account the features of the demand
side. The various theories of sales reviewed in Chapter 2 also have incorporated this
idea. Thus, knowledge about buyers behavior is essential to the analysis of producers
development strategies.
Following this analytical approach, this thesis found that the peculiar features of clas-
sical music consumption have interesting implications on the behavior of record producers.
The demand features that we emphasize are endogenous tastes. First, consuming well-
performed classical music is likely to enhance the preference for it. Due to such preference
reinforcement, the consumption of music is said to be addictive. Second, the demands of
dierent consumers for a certain artists performance are mutually dependent. In other
words, the force of social interactions is at work.
Two models are presented in this thesis to analyze how record producers would exploit
the investment opportunities opened up by these demand features. They cover, respec-
tively, the decisions on product pricing and on the type of music to produce. The model
of record prices presented in Chapter 2 follows the consumption capital approach in mod-
eling addiction. The preference reinforcement eected by an on-the-consumption training
links up consumers demands intertemporally and causes the long run record demand to
become elastic. This implies that the equilibrium price is lower than the conventional
level. Such a lower price is set to facilitate the accumulation of music capital, thereby
96
strengthening the future demand. So the under-pricing is an investment behavior. The
investment incentive will be stronger, which implies a lower price in equilibrium, if the
rate at which music capital can be accumulated through music consumption is higher.
The model shows that rms with dierent sizes will not engage equally in addicting
consumers. A larger stock of consumption capital will benet not only the investing rm,
but also the other rms because it raises consumers demand for records in general without
making them loyal to the investing rm. Given that the cost is privately borne, the larger
the divergence between the private and full returns, the weaker the investment incentive
would be. Such a divergence is smaller (larger) for larger (smaller) record companies
because to them there are fewer (more) products supplied by the others, and also they
have a higher (lower) marketing ability. Thus, large record companies would set a lower
price than their small-sized counterparts, who can be regarded as free-riding the major
players eort to strengthen the market demand.
Among the records supplied by the same company, prices may also dier as a result
of its building up consumers music capital. Note that listeners with little previous
exposure to classical music, rather than those with an already-established taste are the
target group. Since which group a consumer belongs to is not known to the producers,
they will choose to under-price more the products that are relatively more appealing
to the novices. Even if the identities are known, this still occurs because it is dicult
for rms supplying standardized records to prevent resale. Otherwise, the rms can
simply charge a lower price to young consumers (or practise the simplest form of price
discrimination). Given that novices tend to begin cultivating their taste for classical
music with the more well-known or the mainstream works, the model therefore predicts
that records of the essential repertoires will be cheaper. In addition, as records that
have been marketed for a long time are likely to have saturated the market of addicts,
re-issues will also be priced more cheaply, implying a declining temporal price pattern.
While the theoretical implications are consistent with the price-discrimination story, our
model oers an explanation of the origin of the elasticity dierences, instead of imposing
arbitrary and ad hoc assumptions on them.
The various theoretical implications help explain why it is often observed that records
with similar artistic qualities may command dierent prices and predict what kinds of
97
records are more likely to be oered as good buys. They are tested empirically using
data on records circulating in the U.K. The sample is controlled to include records that
involve primarily performances of the New Grove pianists. We measure the popularity of
a music piece by (i) the number of circulating records with a piano performance involving
the composer and (ii) the number of his works being included in the syllabus of the three
piano diploma examinations of the Royal School of Music. Quality is measured by the
length of the column description dedicated to the pianist in the New Grove. Both the
ordered logit and the binomial logit estimates indicate that the likelihood that the record
commands a full price depends negatively on the popularity of the recorded music, the
size of the publishing company and on whether it is a re-issue, supporting the major
theoretical implications.
The model presented in Chapter 5 analyzes the decision on which type of music
to supply. The element that it highlights as essential to the decision is the possible
trade-o between the pecuniary future return on investment in reputation and the non-
pecuniary present return of on-the-job consumption. Matured listeners, who are familiar
with dierent artists, derive utility from, along with the artists quality, their reputation
(or how welcomed they are) as represented by the size of the demand for their previous
work, corresponding to the notion that social interactions are at work. This generates an
incentive for artists to establish their reputation early in their career.
This motive relates to the decisions on the kind of music to perform because main-
stream music attracts greater attentions from listeners. But the mainstream market is
not necessarily the best place for establishing a reputation because the associated com-
petition would also be more intense. The decision is further complicated by the fact
that the type of music that can make an artist more reputable may not coincide with
his artistic preference. When the incentive to build up the reputation capital diminishes
later in the career, the non-pecuniary motive may dominate, giving rise to a mid-career
switch to perform a dierent type of music. In other words, if an artist is to pursue his
own artistic interest for a period of his career at the expense of some pecuniary returns,
it is more economical to do so later in his career.
The model predicts that talented artists possess a comparative advantage in producing
mainstream music. They thus tend to launch their careers in this market. Although their
98
preferences also matter and possibly attract some young talented artists to play fringe
music, the incentive to invest in reputation should generally be stronger early in their
careers. Nevertheless, switching may occur as this incentive diminishes. The model
shows that so long as the fringe market is not too small, there will be artists who started
their careers in the mainstream market switching to the fringe market later because their
interest in fringe music can then be pursued without scarifying too much the returns on
the established reputation.
This type of switching is more likely for artists with a higher ability. Note that
the returns on investing in reputation stems from the listeners who are knowledgeable
about dierent artists. Unlike novices, they listen to fringe music as well. If the fringe
market actually has a higher concentration of experienced listeners, it will be relatively
more attractive to talented artists who have established a good reputation. In addition,
their products are able to penetrate more deeply the less competitive fringe market.
Such eective market size eect and market penetration eect will motivate talented
artists (rather than their less-talented counterparts) to switch to playing fringe music
later in their career.
However, a career switch from the fringe market to the mainstream market would
not occur. Obviously, if artists choosing to begin their career in the fringe market are
driven by a large non-pecuniary return but not the inability to secure a market share
in the mainstream market, they will not switch even when the returns on investing in
reputation already has diminished. If such a choice serves more the purpose of avoiding
competition, they will continue to do so and stay in the fringe market.
The empirical validity of these theoretical implications are examined by a set of con-
temporary pianists recording careers. Their talents are assessed by using various music
dictionaries, biographies and outcomes of piano competitions. Based on the popularities
of their recorded music, the markets that they chose to participate at dierent stages are
identied. We found that switchings from the fringe market to the mainstream market
are far less likely than switchings of the reverse direction; a positive matching between
artists and repertories occurs early in their careers and artists who switched from the
mainstream to the fringe market will not choose to record special-interest repertoires
(which are likely to command only a small market size). However, there is no strong
99
evidence supporting the hypothesis that artists switching to the fringe market are more
talented than those staying in the mainstream market. This possibly is due to the inabil-
ity to control for the heterogeneity of their preferences and the incorrect self-assessment
of the artists as a result of uncertainty.
The decisions on product prices and on the type of products to supply are just two di-
mensions of the behavior of classical music record producers. There are other interesting
topics about classical music production that await future research. Examples include the
forces behind the positive match between record companies and artists, the contractual
relationship between them, the decline in the popularity of classical music, etc. In ad-
dition, how observations in other sectors can be explained by incorporating the peculiar
demand features is also worth studying.
100
Appendix A
The Piano Competitions
This appendix lists the music competitions considered in measuring the talents of the
sampled pianists in the study on career building behavior. They are classied into major
and non-major competitions. Major competitions refer to those being a member of the
World Federation of International Music Competition.
Major Competitions
Alessandro Cassagrande Concorso Pianistico Internazionale
Arthur Rubinstein International Piano Master Competition
Budapest International Music Competition
Clara Haskil Piano Competition
Cleveland International Piano Competition
Concorso Pianistico Internazionale Ferruccio Busoni
Concours Geza Anda
Concours International dOrgue Grand Prix de Chartres
Concours International du Festival de Musique de Toulon
Concours International Marguerite Long-Jacques Thibaud
Concurso Internacional de Piano Jose Iturbi Fryderyk
Chopin International Piano Competition
101
G B Viotti Concorso Internazionale di Musicale
Gina Bachauer International Piano Competition
International Competition of the Teatro Alla Scala: Dino Ciani Prize
International Franz Liszt Piano Competition
International Johann Sebastian Bach Competition
International Mozart Competition of the Hochschule Mozarteum
International Music Competition Maria Callas
International Organ Competition, Odense
International Piano Competition of Cologne
International Robert Schumann Contest
International Tchaikovsky Competition
Leeds International Pianoforte Competition
Ludwig van Beethoven International Piano Competition
Murray Drano International Two Piano Competition
Porto International Music Competition
Prague Spring International Music Competition
Queen Elisabeth International Music Competition of Belgium
Santander International Piano Competition
Scottish International Piano Competition
Sydney International Piano Competition of Australia
University of Maryland International Competitions
World Piano Competition London
Van Cilburn International Piano Competitions
102
Non-major Competitions
American Guild of Organists / National Young Artists Competition in Organ
American Pianists Association National Fellowship Piano Auditions
Andrew Wolf Chamber Music Award
Artists Internationals Annual New York Debut Award Auditions
Artists Internationals Distinguished Artists Award Auditions
Associazione Concorisi & Rassegno Musicali (ACERM)
Australian Broadcasting Corporation Young Performers Awards
BBC Television Young Musician of the Year Competition
Boston Classical Orchestra Youth Competition
Brandeis University Creative Arts Awards
Canadian Music Competitions
Carmel Music Society Competition
Cesar Franck Organ Competition
Chopin Foundation of the National Chopin Piano Competition of the United States
Civic Orchestra of Chicago Soloist Competition
Concert Artists Guild International New York Competition
Concorso Internazionale Pianistico Ettore Pozzoli
Concorso Internazionale Pianistico Liszt Premio Mario Zan
Concorso Pianistico Internazionale Alfredo Casella
Concours International de Clavecin
Concours International de Musique Jean Francaix
Concours International dExecution Musicale
Concours Orchestre Symphonique de Montreal
Concurso Internacional de Piano Ciudad de Montevideo
103
Concurso Internacional de Piano Frederic Chopin
Concurso Internacional de Piano Premio Jaen
CRS National Festival for the Performing Arts
DAngelo Young Artist Competition
East and West Artists International Auditions for New York Debut
Eckhardt-Gramatte National Music Competition for the Performance of Canadian Music
Elizabeth Harper Vaughan Concerto Competition
Festival of Flanders Bruges Musica Antiqua Contest
Fort Collins Symphony Association Young Artists Competition
George Enescu International Piano, Violin and Singing Competition
GPA Dublin International Piano Competition
Haddoneld Symphony Young Instrumentalists Solo Competition
Ima Hogg National Young Artist Audition
International Anton Bruckner Organ Competition
International Gaudeamus Interpreters Competition
International Kuhlau Wettbewerb fur Flotisten
International Music Competition of Japan
International Music Competition of the Broadcasting Corporations of Germany
International Young Concert Artists Competition of Tunbridge Wells
Internationaler Wettbewerb fur Junge Painisten Ettingen
Ivo Pogorelich International Solo Piano Competition (USA)
Joanna Hodges International Piano Competition
Johann Sebastian Bach International Competition
Kamloops Symphony Orchestra New Celebrity Competition
Kingsville International Young Performers Competition
104
Kosciuszko Foundation Chopin Piano Competition
Leonard Bernstein Jerusalem International Music Competition
Liederkranz Foundation Scholarship Awards
Louise D McMahon International Music Competition
Masterplayers International Music and Conductors Competition
Meadows Foundation Young Artists Auditions Competition
Midland-Odessa Symphony and Chorale Inc., National Young Artist Competition
Missouri Southern International Piano Competition
Montreal International Music Competition
Mu Phi Epsilon International Competition
Naftzger Young Artists Auditions and Music Awards
National Competition for Performing Artists
National Symphony Orchestra Young Soloists Competition
New Jersey Symphony Orchestra Young Artists Auditions
Newport International Competition for Young Pianists
Olga Koussevitsky Young Artist Awards Competition
Palm Beach Invitational International Piano Competition
Premio Internacional de Piano Fundacion Guerrero
Pro Musicis International Award
Rolex Music Performance Awards
Royal Over-Seas League of Music Competition
San Antonio International Keyboard Competition
San Jose Symphony Young Pianist Concerto Competition
Santa Barbara Symphony and the Esperia Foundation Young Artists Competition
Scheveningen International Music Competition
105
Sendai International Music Competition
Shreveport Symphony / Nena Plant Wideman Annual Piano Competition
Simone Belsky Music Award Competition
Sorantin Young Artists Award
Southwestern Young Music Festival Competition
Spivey International Performance Competition
Stravinsky Awards International Piano Competition for Children and Young Adults
Swiss Organ Competition
Tokyo International Music Competition
Virtuosi per Musica di Pianoforte
Walter W Naumburg Foundation International Competition
WAMSO (Womens Association of the Minnesota Orchestra) Young Artist Competition
Washington International Competition
William C Byrd Young Artist Competition
World Music Masters International Piano Competition
Young Concert Artists International Auditions
Yvonne Lefebure International Piano Competition
106
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