Abstract:

In this paper we examine the market for music CDs to see how it is different from physical markets in terms of characteristics such as pricing, price dispersion and price dynamics, and what emergent market structures are taking shape. We find that the Internet market continues to show price dispersion despite the apparently near zero search costs for consumers. Retailers tend to have a different set of pricing strategies for mainstream and niche products thereby catering to distinct customer segments. Price dynamics alter over time with Internet retailers offering cheaper prices for niche products and employing more frequent and finer price changes. With growing support for digital distribution and peer-to-peer connectivity illustrated by the Napster community, it appears that value chain structures will evolve and market roles change over time to reflect the changes in value creation competency requirements.

Keywords: ELECTRONIC; MARKETS; MUSIC; INDUSTRY; PRICING; DISPERSION

Language: English

Document Type: Research article