Higher Prices, Lower Sales: It works even for music

If you understand that demand curves slope downward, you will understand all of economics that it is worthwhile to understand. Apple iTunes Music Store had to raise the price of some individual tracks as part of an agreement with the music industry. Guess what? The songs that increased in price, songs that tend to be the most popular, saw their rankings on iTunes fall. Billboard has the story here:

Two days after the Apple iTunes Music Store raised prices on some individual tracks, there was evidence the increases have hurt the sales rankings of songs given the higher $1.29 price.

While it is difficult to say with certainty whether a price increase had resulted in less revenue, rough estimates reveal slight, negative changes in chart position would result in a positive change in revenue. The changes in chart position between Tuesday and Thursday, however, clearly show that higher prices had forced many songs to cede chart position to lower-priced songs.

On Wednesday, one day after the price increase, the iTunes Top 100 chart had 40 songs priced at $1.29 and 60 with the original $0.99 price point. The $1.29 songs lost an average of 5.3 places on the chart while the $0.99 songs gained an average of 2.5 chart positions.

Seven of Wednesday’s $1.29 songs had been priced at $0.99 on Tuesday (there were 33 songs priced at $1.29 on Tuesday morning). Those seven songs lost an average of 1.9 chart positions from Tuesday to Wednesday; one of them gained ground, eight lost position and one remained the same. The remaining 33 songs priced at $1.29, whose prices went unchanged from Tuesday to Wednesday, lost an average of 7.7 chart positions.

A similar trend was seen the following day. The 53 songs priced at $0.99 rose an average of 1.66 places on the chart; 24 rose on the chart, 18 dropped and 11 remained even. The 47 songs priced at $1.29 lost an average of two chart positions; 11 rose on the chart, 27 dropped and nine remained even. Ten of the $1.29 tracks were priced at $0.99 the day prior and they lost an average of 12.4 chart positions. A number of the tracks with a Tuesday-to-Wednesday price increase that gave up chart position were from Rascal Flatt’s Unstoppable (and one track from Unstoppable dropped off the Top 100 altogether). . . .