Simple economics: Week one of the iTunes price change

Billboard magazine today said that sales of newly-priced iTunes tracks are trending downward as a result of last week's price increase. The publication's figures pertain to tracks that were formerly 99¢ and are now $1.29. A price increase of roughly 30% correlated to a 12.5% drop in sales. Meanwhile, tracks that were unchanged in price actually sold 10% more than the previous week, and sales were up 3% overall.

It is a path that labels do not want sales to follow. Before the changes went into effect, a major label executive who wished to remain anonymous, told Reuters, "If we can gain traction with $1.29 that will be good for greater margin."

So there's no traction yet. But it's only been a week, and all these stats show is that MP3s too are subject to the laws of the demand curve. It's one of the most simple concepts in economics: As the price of goods increases, the demand decreases. Adjustments take place until the market clearing price is reached, that is, the point at which supply and demand are equal.

But the prices didn't only increase, and Billboard failed to focus on tracks that actually went down in price to 69¢, shrinking the margin. 69¢ tracks were forecast to sell at a rate ten times greater than $1.29 tracks, also quite directly following the demand curve.

© 1998-2014 BetaNews, Inc. All Rights Reserved. Privacy Policy.