Wednesday, October 22, 2014

Market Manipulation in the Classroom

I talked about differentiation in markets. In particular, the music industry is best defined by horizontal differentiation, since consumer tastes for music varies based on a variety of variables independent of price. I indicated that while I prefer the Black Keys to the Black-Eyed Peas, if the price difference is high enough, it could induce me to switch my preferences (or not buy anything at all).

Trying to sound "hip" by liking a contemporary band can be risky. First, they may not be popular anymore, reducing your "hip" factor. Second, they may not be popular with your specific class. Lastly, you might be called on your bluff: "What is your favorite song?" To which you respond, "Uh, the latest one?" is not a good response. (Tighten Up, Nova Baby, and Aeroplane Blues if you must know).

An unintended consequence is that my announced preference for The Black Keys actually reduces the preferences of my students. In other words, by adopting something that is popular, it becomes unpopular because too many (or the wrong type) people adopt it. This was characterized by Malcom Gladwell's Cool Hunt.

So, my announcement probably reduced their popularity, lowering prices, making me happier. In other words, students' tastes for music is dependent on professors' tastes. I have to think of some other brands I want lower prices for.

However, this is bad for the label and the band, and current album holders. In actuality, they should pay me to not like them, or at least not to announce that I like them. This famously occurred with Abercrombie and Fitch and the Jersey Shore cast.


We could also extend this to decisions to release information about public traded companies to manipulate the price. Fortunately, there are laws regulating some of this. There are none concerning brand preferences, so I expect a tidy sum to show up in the mail else I continue to profess my excitement for the band.

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