Creative Destruction

October 16, 2007

Competition Spurs Failure

Filed under: Business,Economics,Science — Brutus @ 1:38 am

As with Adam’s anticipation of the demise of the newspaper, the demise of the recording industry has been prophesied for some time now. Periodic transitions from one medium to another have been disorienting, but it wasn’t until the digital era, when ripping tunes and file swapping became ubiquitous, that the economic model of the recording industry got to be seriously undermined. (Others have disagreed with me on this point in the past.) The RIAA has made itself a scourge by acting to protect its members’ intellectual property, which I find a legitimate response but others insist is preposterous. This is a brief background to provide context.

What surprised me to learn was that the recording industry has had a larger hand in its own eventual failure than even I suspected. As this article describes in some detail, recording companies (labels, if you wish) competed to attract listeners and sell albums, but rather than focus on developing musical groups and creating the best possible musical product (or maybe in addition to those things), they adopted a subtle technological trick to harpoon listeners. Louder music (average level rather than peak level) tends to give the impression of better quality to typical listeners, so over time, the dynamic range of music was flattened or compressed while made louder overall. The side effect the industry should have foreseen is listener fatigue, which causes customers to turn off the music.

This competetive strategy looks conspicuously like the tragedy of the commons to me. A few thoughtless competitors abandoned their values for a temporary and illusory edge in the marketplace until the practice became so widespread that the music itself was compromised. I suppose there are plenty of examples of both principled competition and weaselly competition. In this case, the weasels sealed their own fates first by enabling infringers and then selling listeners short (not in that order chronologically). Oddly enough, neither of these practices has had the same effects in the classical and jazz markets, where the best possible medium and best possible musical material have always been used to stimulate listeners’ interest and album sales. What a shame those simple values are lost in mass markets.


  1. perhaps there are other culprits, such as youtube and international piracy. or am i off track?

    Comment by greywhitie — October 26, 2007 @ 6:04 pm | Reply

  2. Certainly other culprits are not without their effects. My point is that the recording industry has contributed in a couple ways at least to its own failures. The mechanism is ironically competition, which some of the conservative economic thinkers on this blog believe to be the solution to market failures rather than the cause of them, as I’ve tried to show in this particular case.

    Comment by Brutus — October 27, 2007 @ 11:54 am | Reply

  3. This isn’t a case of competition creating market failure; it’s a case of stupid behavior causing business failure, for particular companies. Market failure and business failure aren’t the same thing.

    Comment by Robert — October 27, 2007 @ 12:38 pm | Reply

  4. Please describe the differences between market failure and business failure. It’s not something I care to get into but I’d like to know what you believe are the salient differences.

    Comment by Brutus — October 27, 2007 @ 10:50 pm | Reply

  5. Market failure is when significant numbers of consumers aren’t able to get their needs met through the market.

    Business failure is just an individual enterprise not being able to make it.

    We don’t have market failure in the case of the music industry because purchasers of music have never had their needs met more thoroughly. And producers of music have never been better off either. Who do we see failing? The middlemen whose work used to provide real value but who now are just rent-seekers.

    Comment by Robert — October 28, 2007 @ 3:03 am | Reply

  6. I think MC Lars put this example the best.

    Comment by Off Colfax — October 28, 2007 @ 4:25 am | Reply

  7. Exactly. Marty is hosed. No loss.

    Comment by Robert — October 28, 2007 @ 11:16 am | Reply

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at

%d bloggers like this: