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Chapter 14: Problem 6

In the Apple first launched Apple Music, singer Taylor Swift refused to allow her album \(1989,\) which had been the best-selling album of the year, to be made available for the service because Apple did not intend to pay royalties on songs it streamed during an initial three-month period when the service would be free to subscribers. In response, Apple changed its policy and agreed to pay royalties during those three months, even though doing so reduced its profit. Do singers typically have substantial bargaining power with Apple, Spotify, and the other streaming services? Briefly explain.

Short Answer

Expert verified
According to the given scenario, artists like Taylor Swift, who have a high demand and fan following, do have substantial bargaining power with streaming services like Apple Music and Spotify. However, this might not be the case for all singers, particularly those who are emerging or less popular. The bargaining power of a singer depends largely on their popularity and fan base.

Step by step solution

01

- Understand the situation and players involved

Taylor Swift, a high-selling and popular artist, did not agree with Apple's initially proposed model of not paying artists royalties during the service's establishment period. As a result, she withheld her top-selling album \(1989\) from Apple Music. This action prompted Apple to change its policy.
02

- Identify the bargaining power held by Taylor Swift

Taylor Swift proved to hold significant bargaining power in this scenario. As an artist whose work was highly sought after, she was able to leverage her popularity to influence Apple's decision. Apple, recognizing the possible loss of subscribers without Swift's popular album, chose to change their policy to accommodate her demands.
03

- Generalize about singers' bargaining power

While Taylor Swift demonstrated significant bargaining power in this situation, it's essential to evaluate if the same is valid for other artists. Not all singers may have the same level of influence as Swift. High-profile artists or ones with a large fan base might have similar bargaining power, but emerging or less popular artists may not. It can be assumed that the bargaining power of a singer largely depends on their popularity and demand among the audience.

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Most popular questions from this chapter

Suppose there are four large manufacturers of toilet tissue. The largest of these manufacturers announces that it will raise its prices by 15 percent due to higher paper costs. Within three days, the other three large toilet tissue manufacturers announce similar price hikes. Would this decision to raise prices be evidence of explicit collusion among the four companies? Briefly explain.

What is an oligopoly? Give three examples of oligopolistic industries in the United States.

An article in Forbes described these characteristics of the airline industry: "Airlines aren't like normal consumer businesses.... Infrastructure including aircraft, gates and runways takes years to put in place. Capacity rebalancing in response to demand shifts isn't easy and idle infrastructure of this magnitude is very expensive." Do the characteristics referred to in the article help explain why the airline industry is an oligopoly? Briefly explain.

(Related to the Apply the Concept on page 489 ) For many years, airlines would post proposed changes in ticket prices on computer reservation systems several days before the new ticket prices went into effect. Eventually, the federal government took action to end this practice. Now airlines can post prices on their reservation systems only for tickets that are immediately available for sale. Why would the federal government object to the old system of posting prices before they went into effect?

Give an example of a government-imposed barrier to entry. Why would a government be willing to erect barriers to firms entering an industry?
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