Market Structure Change in the Music Recording Industry

To consider the market structure in the traditional music recording industry, oligopoly models are the applicable focus, since a small handful of firms – The Big Four currently dominates the whole industry. However, independent firms with relatively smaller scale often initiated new products, which attracted consumers. According to Peter Alexander, “the distribution of market share among major and independent firms in the domestic music recording industry has shown fluctuations approximating the shape of a (W), with two periods of low concentration, preceded and followed by several periods of high concentration.”(1994) This essay is dedicated to discussing the balance of power and exploring payments by record companies to radio stations.

In the industry's infancy (1890-1900), three firms – Victor, Columbia, Edison - produced most audio related products. This preliminary stage of extremely high industry concentration was followed by a period of rapid technical innovation in manufacturing technology (1900-1910) and the expiration of initial patents (1994), both of which led to the entry of new firms and a modicum of market share dispersion.

In the five-year period between 1914 and 1919, the number of firms manufacturing phonographs and records grew at an average annual rate of 40% in estimate. However, from 1919 to 1925, the number of firms producing record players and/or records decreased at an average annual rate of 14.8%. It is worth mentioning that the independents grew in size and importance and the number of firms decreased as a result of mergers. From 1930 to 1945, the music recording industry was again highly concentrated. A collapse in record sales and material shortage in the Depression of the 1930s and the hostilit...

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...sional investigations, and increased penalties for engaging in providing payola. (1994)

The dominant firms may be able to prevent their independent competitors from obtaining radio airplay by purchasing "exclusionary rights" via payola. They perhaps purchase both radio airplay and deny new entrants and fringe firms to airplays through payola.

Through lifting the costs of new entrants and even excluding them from airwaves, payola by major firms effectively thwarts their potential competitors from entering the market. Government regulation may have a substantial impact on the market structure of the music recording industry, since some laws increased the cost of payola. With denying smaller competitors from obtaining radio airplay it is plausible to see an increased industry concentration, and fewer new product releases than a competitive structure would provide.