3. Producing Music

This section covers basic producer theory, including cost curves and the firm’s profit maximizing decision rule for production. The types of market structures that will be discussed are perfect competition, monopoly, and oligopoly. The music industry is an oligopoly in that there are a handful of large firms that control a majority of the market. There are several barriers to entry that enable these firms to maintain persistent economic profits, namely ownership of intellectual property, high startup costs, and economies of scale. There are also game theoretic implications for the firms in the oligopoly market structure and basic games of strategy (Prisoner’s Dilemma and the Cournot Model) will be discussed. A thorough grounding in producer theory is necessary to understand the production of music in physical formats like CDs or LPs, and digital formats like digital files or streaming.