Market for CDs is fiercely competitive

Letter to the Editor:

Mr Lee and Dr Walker of the Australian Competition and Consumer Commission suggest (CDs and free trade, 9/6) that I am confused in my letter of 24 May ("Do not interfere in the CD market").  They take this view because I advocated genuine deregulation of that market and not the regulatory control favoured by the ACCC.  Being labelled confused is preferable, I suppose, to being described as advocating a position to obtain a commercial benefit.  Astonishingly, following my previous letter, Mr Lee called me to say that on instructions from Professor Fels, he was seeking assurances that I am not receiving support from the industry.  I am not receiving such support but it is surely preferable to address the issues raised rather than denigrate another agency's position because it is developed without the luxury of vast amounts of taxpayer provided funding.

In their latest letter, the two authors show an unfortunate ignorance of basic economics.  They say that price discrimination is only possible if the seller has market power.  Try telling that the thousands of hairdressers, cinemas, supermarkets that offer discounts to pensioners or students (and therefore a premium price to others)!  Try telling it to nightclubs that admit attractive young women free!  Price discrimination by these and other businesses allows them to be viable, to the advantage of both those paying the premium price and those benefiting from a discount.

Higher revenues that record companies might earn from skilful pricing action must go to the artists.  Unless Lee and Walker are subscribing to the absurd position that the record industry operates as one world wide cartel, market forces will dictate this.  No amount of jingoistic populism about the record companies earning "extraordinary profits" that "are largely repatriated overseas" can beat considered analysis.

The market for CDs is fiercely competitive.  Commercial rivalry ensures any higher revenues that are earned are shared in two ways:

• Established artists are able to obtain them direct when they have achieved sufficient public appeal (would Lee and Walker think this a nefarious exercise of "market power"?).
• In other cases, competition leads the record companies to engage in higher promotional expenditure etc. on behalf of their artists.  The higher revenues make it profitable for record companies to consider acts that would otherwise not be offered an opportunity.

All this adds to the diversity of offerings and improved artist remuneration.  The ACCC is seeking to introduce regulation into this industry that would require artists to surrender a part of the property rights they presently hold in their own material.  Such requirements will always adversely impact on efficiency.

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