Why Steve Jobs Doesn't Listen

Every couple of months, you get an article demanding that iTunes start following the laws of economics and cease charging the same price for Shakira and The Coup. Occasionally, the record companies get into the act, leaking their unhappiness with a dominant service that doesn't allow them to jack 50 Cent's CD up to $16.99. There's a bit of tensin between the first group and the second, as the first wants to make less-heard artists cheaper so they can move more units while the second wants to make popular albums more expensive so they can reap more profits. Julian Sanchez, I think, critiques the economic logic both correctly in this post:

People are actually going to be a lot less price elastic than you might think, especially for the niche items. That is, suppose Quasi is selling a lot fewer albums than Kanye West. The normal market conclusion would be that Quasi should be priced lower to move more. But that's not necessarily the case, because most consumers aren't actually sitting there making the decision at the margin between Quasi and Kanye. Rather, the people who like Quasi are going to buy it whether it's at 99 cents or 50, and even if it were 10 cents, Quasi just ain't going to be most people's cup of tea. Conversely—and this is more speculative—the items at the top are likely to be stuff for which people have thinner preferences, and are therefore more price elastic. That is, a lot of people are going to download Eminem (or whatever) precisely because it's the hot track everyone else is listening to, but might be dissuaded by an extra 50 cents.

That still leaves record company greed, but I don't think that sort of impulse is particularly vulnerable to critique. You should read the rest of Julian's post though -- it's a surprisingly interesting look at the economics of electronic information.