A brand premium pricing model for digital music market

Abstract

This paper proposes an alternative pricing scheme for the digital music market, where the musician's differentiated characteristics such as fame, popularity, and listener share — in the form of consumer's brand premium multiplier — is incorporated into the pricing decision by the record label. We consider consumers are differentiated by two types of characteristics: the brand premium multiplier towards the musician, and the general preference to music. We argue that in the co-existence of free music streaming, the retail price of a musical product should be allowed to vary in a manner that reflects the differences in market environment and the musician's characteristics. The results of the proposed model provide a toolkit for the recording industry to effectively price its products in a market that is constantly evolving.