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I've found the most interesting take on Universal's decision to lower their CD prices over on The Register and it happens to echo what I've been thinking on the issue. No one else seems to be reporting this, but despite huge sales increases in the nearly twenty years that CDs have been produced, this is the first price drop by any major label ever. The labels went so far as to illegally collaborate to keep their prices high in the 90s. And now, with sales falling steadily for two solid years, Universal has decided to lower their prices. Is this really a bold move to undercut file sharing? I would argue that file sharing has nothing to do with declining sales, except giving the record company executives a convenient excuse for their underperformance recently. This is just simple economics. When CDs first came out, they were produced in much lower volume than they are today. However, as sales volume increased, the labels didn't allow the price to change; they artificially kept it high. Now, I've taken a few econ classes, but I'm willing to bet anyone who has had a high school econ class (and a lot of people who haven't) know what happens when prices are too high: sales fall. So there's nothing bold about Universal's move to lower prices. It's a well-tested macroeconomic response to falling sales. And it is somewhat surprising that it took a record company two years to realize that the best way to increase sales was not to send cease-and-desist letters to college kids but to lower prices.

Posted by on 6 September 2003 at 7:52 AM