Question
As you read in the chapter, the requirements for an industry to be considered monopolistically competitive are that there are many firms and those firms
As you read in the chapter, the requirements for an industry to be considered monopolistically competitive are that there are many firms and those firms are producing unique, or differentiated, products. One industry in which we find differentiated products is the recording industry. Not only are there many genres of music (iTunes lists almost 50), but within each genre there are countless artists as well.
Over the past few decades, technology has reduced the fixed costs of recording and the marginal costs of distributing music. In 1979, for example, the average studio bill for an album was more than $30,000 ($170,000 in today's dollars). Nowadays, with digital recording technology, an artist or band can record an entire album for a few thousand dollars and the album can be distributed at low cost as MP3s on the Internet, with no record store involved.
a.What do you expect to happen to the music industry because of the evolution of much cheaper recording technology? What do you expect to happen to the number of recording artists?
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