Music Download Store Experimenting With Demand-Based Pricing

from the where's-the-supply-side? dept

One of the very good complaints about online music stores is that they offer all songs at the exact same price – which doesn’t make much sense in the market place. So, one company is trying to test that out by offering dynamic pricing for its downloadable songs. The songs all start at the low low price of $0.10 per song, and then fluctuate based on demand. The company is still paying the $0.67 per song price to the music labels, so they’re losing money on plenty of songs – but are saying that’s the cost of the experiment. After they’ve spent the amount they’ve set aside, they’ll go back to the old way of pricing. There are a few problems with this. First, explicit dynamic pricing tends to get a negative reaction from consumers – who feel they get ripped off when someone else bought the same product from the same store at a lower price. More importantly, though, true market pricing isn’t just a function of demand – but of supply and demand. In this case, there’s an infinite supply, so we’re not really talking about market pricing at all. Furthermore, this service competes against plenty of other services that charge around a dollar for songs, so there’s a clear upper limit on what they can charge for any song, no matter how popular. An interesting experiment, certainly, but not necessarily indicative of market pricing.

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Comments on “Music Download Store Experimenting With Demand-Based Pricing”

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Andy Bakun (user link) says:

demand based pricing with infinite supply

When the thing being offered for sale is viewed as a product, then infinite supply plays against any demand based market, just as you’ve pointed out. But if viewed as a service, a service providing timely and on-demand distribution, then higher prices for “better service” could make a lot of sense, especially if buyers of “premimum content” (ie music that’s in high demand (for whatever reason (recent releases, or other culturally defined high-demand times)) are given priority for the ability to access it. I would be willing to pay a premimum price to download something with a higher priority over people who have paid less (various computer game websites have done this for a while (,, you pay and you get to go to the front of the line). But the thing here to make sure it is billed/advertised as an on-demand service that is being paid for, not the “product” itself. Someone who’s been searching for the out of print Shatner album The Transformed Man, which won’t have a high current demand, won’t mind waiting a bit to have access to it, OR won’t mind paying a larger price to ensure his access to it.
In other words, while the supply of the product itself is infinite, the supply of the distribution channel is not (bandwidth and databases and computers and storage all cost money), and that’s what you should be paying for. People are usually more comfortable playing for things like this on a subscription basis though, rather than a per-access.

Andy Bakun (user link) says:

Re: Re: demand based pricing with infinite supply

And re-reading this line…

>The songs all start at the low low price of $0.10 per song, and then fluctuate based on demand.

In a service offering, the price should fluctuate based on the demand for bandwidth, not the product (although in this case, demand for one might be able to be measured with demand for the other). Ideally, the service provider would have advance notice of new releases and could ensure that they actually can provide the needed bandwidth for things that are predicted to be popular/in-high-demand. Most will screw this up though, and it’ll end up being better for the consumer to wait a few hours or days until the thundering herd is past and they can get the product by paying for a lower priced service. How price savvy are the music downloaders, and how much does timely ability to access play against desire in the calculation of demand for commodity products and services?

ben (user link) says:

Re: demand based pricing with infinite supply

would would make this a very cool, and very interesting venture would be to allow you to sell the music you’ve bought, thus treating the songs as stocks… in this way, the company itself would deal out the shares/songs at the demand price, and people could hold on to them or sell them… early investors could make more money that way… many possibilities for an interesting experiment, no?

rzillek says:

dynamic pricing / stock model ...

just a question that surfaced while reading all your very interesting contributions:

What is that company doing about people establishing “black” reseller markets in times of high demand for tracks ?
What if really fast customers buy in cheap and wait for optimal reselling periods throwing that “goods received via services” (my view on music tracks in form of stored bits on my premises)on that “black” markets?

please enligthen me and forgive my genglish typing
I’m from Austria (and for sure “I’ll be back”) 🙂


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