Synthesis of the Concepts in Information

Subject: Economics
Pages: 8
Words: 2449
Reading time:
9 min
Study level: PhD


Current cultural markets undergo a number of considerable challenges and improvements with the help of which people are able to use their knowledge, experience, and ideas to contribute the chosen sphere. There are many sources which explain how changes in different spheres may influence one particular industry and define the outcomes both positive and negative. Almost each article is considered to be a powerful theoretical evaluation of the achievements done and provides the reader with a chance to comprehend what has been done and the reasons of the chosen actions. In this paper, one of such articles will be analyzed and synthesized in accordance with economic and econometrics factors used by the authors. Information and the Skewness of Music Sales is the article by Ken Hendricks and Alan Sorensen written for the Journal of Political Economy in 2009. The authors made a powerful attempt to investigate the cultural market, and the music industry in particular in order to define how the role of product discovery may influence the distribution of sales and products in different countries.

At the beginning of the article, several important economic concepts are identified to help the reader understand what aspects will be worked out: backward spillover, distribution of sales, market demand and its models. At the same time, a number of econometric concepts are used in the article as successful substitutes for some economic concepts which cannot be directly translated into the above-mentioned economic points, still, they can help to identify the dependence that exists between different variables of the chosen economic system.

Hendricks and Sorensen’s article is an educative piece of writing where the idea of backward spillover as a powerful means to identify the dependence of sales on information is discovered as well as the necessity of product discovery in cultural markets with certain constant inflows of the required production.

Economic Challenges of Cultural Markets

To introduce clearly the main themes of the article, the authors make a decision to focus reader’s attention on general conditions of cultural markets and profitability of products under the current economic possibilities and technological progress. Lack of information about products results in the situation when a large portion of shares is still claimed by fewer successful products. Properly chosen reasons of why so many failures are observed in the cultural market clear up the main purposes and intentions of the authors. For example, it may happen that not popular product is advertised a lot to people so that the consumers are aware of its peculiarities and benefits and ready to buy it just because they know something about it.

The quality of the chosen product does not become a significant aspect to rely on; however, at the same time, this kind of information spillover defines future of the authors and artists. If people are interested in the chosen production, they would be eager to buy other products of the same creators: the songs of one singer, books of the same writer, etc. So, much depends on how information about products may be spread over the world and received by the customers. The Internet is one of the latest achievements in the sphere of technology and the most influential factors in music industry.

The impact of the Internet is great indeed. First, it facilitates the flow of different information within a short period of time. Second, it promotes a number of technologies with the help of which music may be listened and promoted. And finally, the Internet is the most preferable source where people are able to share information, purchases, and opinions about the products and define what is actually popular and what is not. In other words, the music industry should depend considerably on the activities which are developed via the Internet: if one production is reduced by the vast majority of population, other people will hardly pay attention to it.

Purposes of the Authors in the Article

In this article, the authors properly define the scope of their investigation as well as the reasons and the purposes of their work. As it is already known information plays an important role in the distribution of sales, this is why, one of the main purposes that have to be achieved is identification of the extent to which music products may undergo changes in sales under the condition that the level of consumers’ awareness of these products is decreased. The point is that the distribution of sales may be more skewed if people are less informed, and a clearly defined model of market demand that may be considered as the main econometric concept in the article should help to define the variables and constants in the chosen process. Due to a number of steps which are properly defined and planned by the authors, the article introduces a clear picture of how sales in music industry may be changed.

Evaluation of demand responses to the currently appeared products, like new music albums, defines the factors which may improve the distribution. There is still a little amount of differences between release numbers: even if the popularity of the artist grows considerably after the first album is released, there is no assurance that the following album may be more successful. As a rule, in most cases, the first album remains to be the most successful example of musician career. It does not actually matter what social factors may affect demand of albums because the main reasons that may improve the situation is the level of knowledge about the chosen product and the process through which potential consumers may obtain this knowledge.

For a long period of time, people got used to listen to radio and get the necessary portion of knowledge about particular albums, singers, and promoters. Nowadays, when the power of the Internet is greater than any other means of communication, much depends on what people see and understood within a short period of time. For example, a person comes to an online music market in order to buy something worthwhile. However, this customer does not rely on personal awareness about the characteristics of the product but focus on the information provided by other customers. These so-called TOPs demonstrate what kind of production is in demand and what music is more interesting to listen to. This is why choice of customers is evident: the song or album takes the leading position and is in demand of the vast majority of consumers.

Taking into account the conditions under which people have to distribute music production and the problems markets are challenged with, it is possible to identify three main points or purposes which are discussed in the article under analysis. The first point is the impact of information on market distribution and demand and the necessity to evaluate to what extent awareness may predetermine sales. The second item is backward spillovers and identification of their impact on consumers’ responses. And finally, the market demand model that could help to identify the relation between spillovers and information and their impact on music sales. At the end of the article, the authors conclude that the distribution of success in the chosen music market differs considerably from what it could be in the world if consumers were more informed (Hendricks and Sorensen 368).

Information and Its Effects on Music Sales

As it has been mentioned above, the role of information and consumers’ awareness is very important in the music industry. It is hard to promote products which are unfamiliar to people. This is why the authors of this article underline that fact that a lack of information may affect product market outcomes. Internet sources aim at providing information within a short period of time around the whole world. 24/7 access to facts, ratings, and products considerably changes the shape of demand that is observed in cultural markets.

Consumers’ awareness may be also determined by the skewness that reflects the products’ qualities, this is why the lower the level of consumers’ awareness is, the less skewed music sales could be. The skewness of products’ quality results in the distribution of returns (Hendricks and Sorensen 324). The distribution of returns is more screwed across artists and albums, however, skewed returns are greater for artists as their popularity is considered to be more persistent under the current conditions. As an example, the career of one singer may be taken: the success of the debut album of the artist should promote the success of the second album. In this case, if the audience is not aware of the essence of the coming album, they are still enough informed about the singer and his possibilities, this is why they are ready to buy new product and set the level of possible demand and appropriate supply.

The Internet may be used as the source for possible economic predictions: the online market may contain some questionnaires about future intentions of the consumers: whether they would buy a new album of the same singer, whether they want to visit a concert and what the reasons are, or whether they would observe some improvements in further works, etc. With the help of such tactical step, it is possible to provide customers with appropriate information as well as producers with customers’ needs.

Backward Spillover as an Integral Economic Concept of Music Market

The authors’ brightest claim is the backward spillover is considered to be smaller in the singer’s or artist’s home market even if sales are higher there. And in case the new release is the hit, the spillover becomes larger without notifying that the catalog album is not a hit. There are two types of spillovers defined in the article: forward and backward. The forward spillover is observed when a consumer is not confident in the quality of the chosen product, but still, because of existed popularity and reputation of the same brand, the demand is increased considerably. And the backward spillover in its turn is observed when the release of high-quality products may be improved due to the chosen brand image, and the sales of the existing products are boosted.

Measuring of spillovers offered in the article proves that backward spillover may appear several weeks before the release of the album and tend to be increased during that period. When the time for the release comes, the backward spillover peaks in the week and remains to be constant for a considerable period of time. This is why the magnitude of the chosen spillover usually depends on the capacity of the release and aims at drawing attention of the consumers to the new product. And the results of how consumers evaluate the product depend on the already discussed issue of information: if consumers are aware of the artist/singer/album, they are eager to buy the offered production, and if they know a little about it, other concepts should be taken into consideration.

Backward spillover as an economic concept should have its variables in according to which, and its size may vary on the following points: how many consumers are uninformed about the released product; what the portion of the consumers who accept the album as the new release is; and what of the consumers who just like the offered album and ready to buy it because of personal preferences.

Market Demand Model Helps to Identify the Relation between Different Economic Concepts and Other Econometric Concepts

The final econometric concept that is discussed in the article if the model of market demand with the help of which it is possible to identify the level of consumers’ incomplete information and the factors which may contribute the cultural market and the skewness of music sales. The chosen model is based on the annual but not weekly demand. The results of past investigations and implementations of the model are used to comprehend what kind of information is more preferable and even obligatory. For example, Hendricks and Sorensen use the ideas by Goeree when consumers are less informed about the products or Wernefelt who evaluated information spillover in regard to firms’ decision to release or not to release new products (329). Econometric model is based on the idea that consumers are aware of the products they are going to buy and the two probabilities which cannot be directly observable in information.

In spite of the fact that the chosen model cannot properly measure the effect of spillovers directly on the sales of the album but still can treat the spillover as the means to understand the extent to which sales may depend on information. This is why what the authors of the article do is the evaluation of level of information provided to the consumers and the reactions of these consumers to the new products.

Still, this model is not the only example of econometric concepts used in the article. Certain attention is paid to the treatment effects which have econometric grounds and a cointegration relation under the conditions of which short-run deviations such as new albums and hits may be allowed to a specific extent. The authors of the article make use the treatment effect model in order to measure the defined spillovers. The chosen model presupposes the idea of interpreting a new album as a particular treatment and sales of such “treated” artists are regarded as the sales inherent to control artists who are just going to release new products. During the experiment, the authors measure the treatment effect in accordance with special proportional terms in order to estimate the existed average treatment effect. Another econometric concept used in the article is connected to the changes which may be observed between the exchange rate and its fundamentals. The identified econometric property shows that music sales have constants and variables which determine the level of popularity with the help of which it is possible to control the skewness of certain music sales and improve cultural industry.


In general, the main purpose of the article is to identify how the level of consumers’ awareness may influence the quality and skewness of music sales. Recent technological changes promote considerable improvements into the sphere of music. The Internet promotes fast spread of information and deprives people of their free choice: everything they have to do is to choose the online market, observe the results of people’s votes, and decide whether it is better to rely on other opinions and save time or start personal investigation and make use of personal conclusions and interests. The authors make a great attempt to evaluate as many factors as possible and prove the correctness of the chosen concepts like spillovers or market demand models with the help of which music sales may be less skewed in comparison to the sales of other industries.

Works Cited

Hendricks, Ken and Sorensen, Alan. “Information and the Skewness of Music Sales.” Journal of Political Economy 117.2 (2009): 324-369.