Music Industry, Five Forces.
International Economics and Competitiveness Essay Question 1.
In this assignment I will divide the question into two parts. Firstly I will provide an overview of how the prices in the vertical chain for music compact discs correlates with how prices are divided according to the mentioned links in production chain of the music industry. Secondly I will by use of Porter’s five forces explain the pattern of this.
Very few big record companies heavily control the music industry. This is also known as Oligopoly, which makes the record companies price setters in the music industry and leaves them with significant more power than that of the artists and the retailers. This means that the record companies determents the price distribution between the links in the process from production to retailer. The record companies are responsible for managing everything in the process as above mentioned; signing up artists, handling technical aspects of recording, securing distribution and promoting the recordings. Because the record companies holds the main responsibility according to the production process and possess the most powers due to oligopoly, the record companies holds 3/5 of the approximate earnings. The artists are the price takers due to massive competition. The artists are highly dependent of the record companies and with virtually no or little difference in the cost of the artists and differentiation between the artists. The retailers are the price takers. Since the music retail business exists with a relatively high concentration of substitutes. The threat that the record companies will create their own music retail business and the threat of the digital music leaves the retailers with very little influence and power in the industry.
To explain the pattern of why the income in the music industry has been divided as given in the question I will use Porter’s five forces. With the concept of Porter’s five forces it is possible to break down
In this assignment I will divide the question into two parts. Firstly I will provide an overview of how the prices in the vertical chain for music compact discs correlates with how prices are divided according to the mentioned links in production chain of the music industry. Secondly I will by use of Porter’s five forces explain the pattern of this.
Very few big record companies heavily control the music industry. This is also known as Oligopoly, which makes the record companies price setters in the music industry and leaves them with significant more power than that of the artists and the retailers. This means that the record companies determents the price distribution between the links in the process from production to retailer. The record companies are responsible for managing everything in the process as above mentioned; signing up artists, handling technical aspects of recording, securing distribution and promoting the recordings. Because the record companies holds the main responsibility according to the production process and possess the most powers due to oligopoly, the record companies holds 3/5 of the approximate earnings. The artists are the price takers due to massive competition. The artists are highly dependent of the record companies and with virtually no or little difference in the cost of the artists and differentiation between the artists. The retailers are the price takers. Since the music retail business exists with a relatively high concentration of substitutes. The threat that the record companies will create their own music retail business and the threat of the digital music leaves the retailers with very little influence and power in the industry.
To explain the pattern of why the income in the music industry has been divided as given in the question I will use Porter’s five forces. With the concept of Porter’s five forces it is possible to break down