Entertainment and Media: Markets and Economics. Professor William Greene. Entertainment and Media: Markets and Economics. Market Outcomes. Setting a Price – How To?. Car Amazon.com – Econometric Analysis Restaurant – A Meal Software Vendor – Online Distribution
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Professor William Greene
= Deadweight loss
Price, MR, MC
= Consumer surplus
= Producer surplus
rates of return.
at earlier stages
in the production
Average total cost
This monopoly profit disappears.
The answer has to do with how Amazon went about building its e-book monopoly in the first place — namely, by setting a price that was lower than what Amazon was paying publishers for the book. What looked to consumers like a great bargain at $9.99 a book looked to others in the industry suspiciously like predatory pricing, or selling below cost today in order to gain a monopoly and raise prices in the future.
What is wrong with this argument? (And with the Syufy case.)
“Pick Your Monopoly: Apple or Amazon,” Steven Pearlstein, Washington Post, 3/11/2012
So which is better: a market in which Amazon uses low prices to maintain its e-book monopoly and drive brick-and-mortar bookstores out of business, or one in which the major book publishers, in tacit collusion with Apple, break Amazon’s monopoly and raise prices?
For the moment, the government has come down on the side of lower prices. Under threat that they will be taken to court for conspiring to fix the price of e-books, the book publishers are trying to work out a settlement with Justice Department’s antitrust division.
One thing that makes it different is that it is happening in a high-tech sector that, by its nature, is prone to winner-take-all competitions. We saw that with IBM in the 1960s, Microsoft in the 1990s and more recently with Google and Facebook. Because of the “network” quality of such industries, customers prefer to do business with the firm that has the most customers. Moreover, once you decide to do business with one company, the cost and hassle involved in shifting to a competitor is sufficiently high that customers tend to be “locked in” to their original choice.
Antitrust regulators have come to believe that, in such industries, restrictive contracts between firms and their customers, or between suppliers and distributors, may not be as benign as free-market economists and judges once believed. Fiona Scott Morton, chief economist at the Justice Department’s antitrust division, recently dubbed them as “contracts that reference rivals” and warned companies that such provisions would now be viewed with heightened suspicion.
Where are the “pockets” of market power, if any, in the production chains of these markets?
Movie stars, shortstops, late night talk show hosts, perky morning news personalities
Marginal expense on players
Supply of players
Marginal value of players
The source of the Yankees’ $190M payroll – A-Rod Jeter, Giambi, etc.
The bilateral monopoly
Downward sloping demand from the seller’s viewpoint (monopolist – the star)
The bargaining range
Upward sloping supply from buyer’s viewpoint (monopsonist – the studio)
The outcome depends on the bargaining strength of the two parties.
“One superagent took the time to explain why I should ask for three times the market rate for my signing bonus. He made the compelling argument that since I would be forgoing the use of an Ivy League engineering degree, the team that chose me should compensate me for my lost wages. He made it clear that the sum of this compensation and a little extra should make up my total bonus.” (“Doubleday and Darwin,” by Doug Glanville, NYT, 7/5/2008)
Market value in excess of the value of the next best alternative (opportunity value)
Resource Activity Foregone Economic Rent
Benefits in year t
(1 + r) t
Simple Cases: Electronic Commerce
Average Total Cost
Average Variable Cost
Average Fixed Cost
Amazon: P > AVC, P < ATC for a few years
EToys: P < AVC (RIP, April 6, 2001)
A Miami Fish Story
Sharing rules: Some participants (usually actors, e.g., Tom (Gump) Hanks) and directors get a % of gross distribution revenue.
There is no net!
Will this movie ever ‘make money?’
Weeknd Gross % Change Theaters Average Gross-to-Date Week #
Aug 1–3 $3,753,518 2,215 $1,694 $3,753,518 1
Aug 8–10 $ 678,640 -81.9% 2,215 $ 306 $4,432,158 2
Aug 15–17 $ 18,702 -97.2% 2,142 $ 256 $4,450,860 3
Overall… $5,600,000 (apx)
(That’s all folks…..)
Costs? Bennifer $25,000,000
Did this film ‘make money?’ Can it?
Delgo is a 2008computer-animatedfantasy film. The film was produced by Fathom Studios, a division of Macquarium Intelligent Communications, which began development of the project in 1999.
Delgo grossed just $694,782 in theatres against an estimated budget of $40 million, according to box office tracking site boxofficemojo.com. The film was released independently with a large screen count (over 2100 screens).
Sources of economic rent (profits) in entertainment industries