Music Is a Network Good

Finally, network products aren’t found just in high tech. Most people want to listen to popular music, so music is a network good. If you listen to music that is popular, you can swap songs with your friends, go to concerts together, and talk about the same people. Thus, popular music is a more valuable good; namely, it offers more benefits to the listener than does obscure music.

In fact, an ingenious experiment by Duncan J. Watts, a sociologist at Columbia University, demonstrated that tastes in music have a strong social component.4 Watts asked thousands of people to listen to and rate some bands that they had never heard of. If they liked a song, participants could download it for free. The trick was that some of the participants saw only the names of the songs and bands, but others also saw how many times the songs had previously been downloaded by other participants. If tastes in music are independent of what other people are listening to, knowing how many people had previously downloaded a song should be irrelevant. You should just download the songs you like, right?

But Watts discovered that the more downloads a song had, the more people wanted to download the song! So if a few early participants happened to like and download a song, that song got even more downloads. As a result, when participants saw previous downloads, accidents of history turned some songs and bands into big hits, while others languished. Even more surprisingly, when Watts ran his experiment again and again, the songs that turned into hits were different every time!

CHECK YOURSELF

Question 16.3

Does a firm with an established network good, such as Microsoft Office, face competition? Why or why not?

So what does this mean? Well, look at two of the principles we outlined for network industries, namely that the best product may not always win and that potential competition is often important. You’ll find both of those phenomena in music markets. Some bands catch a lucky break and become popular fairly quickly. That popularity feeds on itself so a small head start is turned into a big market advantage even if the band is not necessarily the “best.” Was Britney Spears ever that good an entertainer? At the same time there are lots of different entertainers and potential entertainers that compete to be seen as the market leader. Stars can rise or fall quickly depending on public perceptions of popularity. As with other network goods, at any one point in time a handful of entertainers dominate the airwaves and make the most revenues. But a large market share today is no guarantee of popularity in the future so older stars fear being dethroned by hot, young new stars.