Thursday, February 16, 2012

Is the supply of MP3s infinitely elastic?

This came up when Sony raised the prices of Whitney Houston’s records. Economists used to attribute sudden price hikes as an increase demand responding to a relatively inelastic short-run supply curve. They make this argument to justify price increases in gasoline during hurricanes or other disasters. They have also made this argument to argue that prices of roses increase during Valentine’s for the same reason.

While the same argument can apply to CDs, how or why should it apply to downloads? it shouldn’t.

Sony has apologized for bumping up the price of two Whitney Houston records in the United Kingdom immediately following the singer's death on Saturday. "Whitney Houston product was mistakenly mispriced on the U.K. iTunes store on Sunday," said a statement issued by Sony. "When discovered, the mistake was immediately corrected. We apologize for any offense caused."

“Mispriced” my ass.

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