Producing a tape requrires assembly and have they have moving parts, yet a CD with no such parts costs more for the comsumer than a tape. Is there a reason for this?
Yes, there is an extremely complicated technical reason for it- but to put it in laymans terms, it is called a 'rip-off". Folks with CD players had/have more money than folks with cassette players- so they charge more. No, really.
I wonder the same thing everytime I get an unsolicited cd in the mail from AOL or Earthlink. If internet providers mass mail the things then they can’t be that expensive to produce.
Daniel’s right. The CD was developed as a less-expensive alternative to both the LP and the cassette, and it is. It costs about a dollar a CD to record, produce, and distribute in high volume, according to a friend of mine in the Pietasters. Witness the now-ubiquitous AOL free CD-ROMs. (I wish they’d go back to floppys–I’m running low on disks.)
How that expense is inflated 1700% is beyond me. But as limited confirmation of the abovementioned rumor, I cite Dischord Records, who hasn’t had a problem selling CDs for ten bucks apiece for the last ten years. No middleman, and still-lucrative return for Ian.
I’d be more critical of Napster if the artists saw a percentage of the windfall; to my up-close knowledge, they don’t.
Addendum: I worked for a museum for awhile, and our CD’s were quite expensive. Our markup from the distributor was a lavish 40%, in most cases. I suppose if you change hands enough, a series of similar markups could explain the expense. But somewhere, someone is raking in a massive profit. I’d sure like to know who that is, seeing as my musician friends, even the moderately successful ones, have to keep day-jobs.
I think it’s nothing more than market forces.
They set the price at whatever will maximize their profit - why would they do anything else? I suspect that CD’s are more in demand than tapes, and thus command a higher price. Whether tapes cost more or less to produce that CD’s, people aren’t going to pay as much for them. I really think that tapes would cost more if the market would bear it.
Whether this counts as a “rip-off” or “smart business” depends on your perspective, I guess.
Also note that there is no competition between the record labels as to cd cost. It’s universal; they know any price competition would result in lowered profits for all. Price fixing if I ever saw it.
Artists see very little of the money from cds; I’d rather give 5 dollars to the musician for their music than 15.95 to the label and a dollar to the musician.
Just to qualify the “more demand” thing: It’s the shape of the demand function not its size that matters here. I’m guessing a lot more cds are sold than cassettes.
This is probably an example of what economists call price discrimination. Where consumers can be separated into two or more groups and resale is impractical, a firm with market power can increase profit by charging different prices for different groups depending on their responsiveness to price. Specifically profit is maximised by charging prices inversely proportional to demand elasticities such that marginal revenues are equal across submarkets.
Cassette buyers would be more responsive than cd buyers to price changes, so firms can increase profit by lowering the price of cassettes and increasing the price of cds.
Yes, it’s a rip off. The same one as concessional prices for pensioners at the movies and hardcover/ paperback books.
CDs are cheaper to produce and the reason they’re so expensive is because people are willing to pay what they’re charged.
But the manufacturing cost of a CD is not the only cost involved. Sure, they cost a buck to make, but there’s also the cost of recording, overhead, making payments to the musicians, promotion, returns, and shipping, not to mention the markup for both the distributor and the retailer (which the record company never sees). The record companies could knock off a buck or two from a CD price*, but not much more, and when you raise that figure you give a mistaken impression of the economics involved.
*with no guarantee that the retailer would reduce prices instead of pocketing the extra profit.
Those costs are involved in making cassette tapes, too, but CDs still cost more … Basically, what it costs to make isn’t the relevant number- as, Brad_d and others have said, it’s what the market will bear. High barriers to entry prevent others from undercutting prices.
Arjuna34
Arjuna34
This article gives a lot of insight into why CDs are so expensive and the way the music industry has been ripping us all off for years.
There’s another (nearly logical) reason that CDs cost more than tapes. This reason was told to me by someone in the industry, so I’m sure there’s a grain of truth to it. Tapes are less reliable than CDs. In the days of vinyl and tape, the record manufacturers could count on about 10% repurchases (i.e. you buy an album you really like, it gets damaged, you buy another copy). With CD’s, the number of repurchases are way below 1%. Of course, this doesn’t account for the huge gap, but my friend told me something else (I’m not sure I believe this part). Because of inflation, the rising cost of promotion, increased financial demands from the artists, etc., the cost to produce a new album has increased dramatically. The price of cassettes has not been increasing proportionately because the market wouldn’t bear it so, his claim is that CD purchasers have been subsidizing the costs for the cassette buyers. Again, this is not my claim - just relaying what a friend told me.
Unfair CD prices are the least of your worries. A similar analogy can be made with automobiles. They cost a lot less to make these days. The automobile manufacturers are constantly whittling down the costs to produce by pinching their suppliers and developing lower cost manufacturing capabilities. Do they pass these savings on to consumers? Nope, they just add an inexpensive feature here or there and gouge the consumer by charging a disproportionate amount more… It’s the hallmark of capitalism.
Yes. Supply and demand.
In a free market economy, all prices for all goods are determined by supply and demand. It’s that simple. End of story.
Some people may insist the laws of supply and demand don’t apply to CD’s and tapes. These people, of course, and badly in need of an Econ 101 course.
Well lets see, I’ve been buying tapes and CDs for 15 years now and have 500 or so CDs and about 200 cassets. Tapes from what i always remember were around 10 bucks for a new tape, they STILL range around that price, they might have gone up to 11 but no higher. I’ve been buying CDs for 8 years now and they cost me at the begining around 12-13 bucks at most, now a lot are starting to push 20! :eek: now how come CDs cost twice as much and tapes haven’t gone up that much in price. Yes I understand the supply and demand but I don’t buy new CDs any more unless it’s under 15 bucks, I buy all used stuff if I can.
I also know that the manufatures have a set lower limit that retailers can charge, that sounds like price fixing to me. and don’t tell me some of the smaller companies cant charge lower because I just bought Gamma Ray’s new Best of that the group went back and re-recorded all of the songs AND it’s a two CD set plus a nice book/cover for 15 bucks. Hell if CDs were cheaper I’d buy A LOT more.
The much ballyhooed “Invisible Hand” of certain economic ideologues is more Easter Bunny than hard science.
The arguments for price-fixing of CDs is more convincing. You want to invoke market forces? Well, the greed of the record companies is justly rewarded by the huge success of Napster. They brought it on themselves.
Now if only there could be a Napster for the automobile industry . . . but there you have the crucial difference between Information and Smokestack Industry.
Aren’t CDs supposed to be getting less and less expensive as time goes on? …until, they cost NOTHING at all?
Good link, Arken. There is, however, a court case currently pending which charges that there has been a price fixing conspiracy between some of the major distributors and retailers. I can’t recall who brought the suit, but I think one of the plaintiffs was Tower Records. It would be nice if prices were actually determined by supply and demand, but unfortunately some suppliers would rather use underhanded means to inflate prices. IIRC, the intent of the price fixing in this case wasn’t as much to maximize profits as it was to keep other retailers from being able to sell at lower prices.
Another hugely marked-up item seems to be boxed-sets. While I understand theres a premium on the content your getting in a boxed set (several cds worth of previously-unreleased material), the actual material cost can’t be that much more than a typical cd. Often a small box containing 3 or 4 cds will run you about $80.00.
Something to think about. Who gets the profit, here? I bet you it ain’t the artist!
Found a link to an article on the lawsuit.
CDs are a better product. You can skip to songs, program the play order, store them easily, and they don’t wear out. I don’t mind paying more. I always hated cassettes. My car enjoyed them though. It ate plenty of them.