Friday, April 20, 2007

Does the record industry fix prices? The Economist thinks not

Let's talk about price-fixing, shall we? The Economist reported in a recent issue that the European Commission was re-opening its investigation into the merger that created recorded-music titan SonyBMG.

Says the Economist, "At issue is whether the four majors together might now reach an unspoken understanding about prices."

It's clear that CD suggested retail prices--it's clearly illegal for manufacturers to coerce an actual retail price from a retailer--are highly standardized. The actual retail prices, however, differ substantially based on the outlet (the latest Rascal Flatts CD at Wal-Mart costs far less than it does at Joe Nardone's Gallery of Sound).

The Commission is not concerned about retail prices; instead they are looking at whether wholesale prices--the prices that retailers pay to the record companies for their stock--are coordinated.

Here's why such coordination is virtually impossible. The power in retailing has shifted dramatically from manufacturer to retailer in the last twenty years (the recent book "Private Label Strategy" does a good job of explaining this shift). No record company dictates to Wal-Mart how much they must pay for CDs. Ditto Amazon and Target. So such collusion, difficult as it is to coordinate between the four companies, would fall apart anyway once they tried to enforce it with their retail customers.

So we can all breathe a sigh of relief about that and go back to illegally downloading our music over peer-to-peer networks. (Just kidding!)

(Pictured: the new album from Son Volt, distributed by SonyBMG)

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