The rise of the digital economy has affected entire economies, bringing with it profound changes, including to the pop music industry.
Alan Krueger takes the reader on a tour through this industry using non-technical language and a great deal of data in order to document these technological changes and show how they are affecting performers and consumers.
Developments like music streaming "have made it possible for performers to reach an ever wider audience. And the increasing globalisation and inter-connectedness of the world have vastly increased the reach and fame of the most popular performers". A consequence is that the industry has shifted toward a "superstar, winner-take-all affair".
Two conditions must be met for this superstar phenomenon to emerge. First, there must be economies of scale, whereby the performer can reach a wide audience with little or no extra cost to the producer per listener.
That is precisely what streaming delivers. Secondly, performers need to be imperfect substitutes; that is, performers are not identical - each must have a unique talent. Of course there is also an element of luck, and a feature widely known as the 'power law': that the popularity of an artist - or a song - grows geometrically rather than linearly.
This arises through cascades of information and musical preferences through fans' networks. Krueger gives a number of examples of these, including from laboratory experiments.
No reader will be surprised to find examples of price discrimination in the music industry. Price discrimination is where a business restricts the sale - or resale - of its product in order to maximise income. Kreuger documents a number of these.
For example, Taylor Swift waited 3 weeks after the release of her new album Reputation before allowing it to be made available on streaming services. The reason was that royalties were greater for the full album sales than for the individual streaming services, and the keenest fans were willing to pay for the full album. She profited significantly from this strategy.
Perhaps what might surprise readers of this book most is the fact that most pop musicians make the largest chunk of their income through live performances rather than through sales of recorded music.
And, of course, the biggest income goes to the superstars.
Krueger, who has much data to support his claims, notes that over the last few decades 'the share of concert revenue taken home by the top 1 percent of performers has more than doubled, from 26 percent in 1982 to 60 percent today.'
In spite of the book's emphasis on the globalisation of the pop music industry, its main focus is on the US. However, a chapter towards the end briefly addresses the global market in music and points out the huge potential of China with its rapid technical change and its enormous population.
In passing, it also notes that concertgoers in China used to be required to stay in their seats and not dance and sing at live performances.
However, recently the Chinese authorities started allowing attendees to stand and dance during a performance - but this has to be done while standing on their chairs. This exemplifies the sort of anecdote that Kreuger introduces into his text to bring it to life.
This chapter also mentions Sweden, which has had huge success in the pop music industry, a success that is attributed to Sweden's widespread music education, English proficiency and integration into the global economy.
As I am a novelist as well as an economist, I found myself thinking, while reading this book, of the many parallels - and differences - between the pop music industry and book publishing industries.
It would be wonderful to see these addressed in the future; but that would be another book.
Rockonomics is based on much data and provides many detailed insights that make it essential reading for anyone studying or working in the pop music industry.
It is also essential reading for anyone thinking of embarking on a career in the music industry (or the parents of a child with such ambitions).
Particularly relevant are the insights about intellectual property, contracts, royalties, and the like, and the very low probability that a pop musician will make a lot of money.
It is mostly love of music that keeps people working in this industry.
And, according to the final chapter, it is listening to music that keeps people happy.
Rockonomics was published posthumously, as Alan Krueger sadly passed away earlier this year. It was a great loss to the economics profession and beyond, as this book makes clear.
- Rockonomics: What the music industry can teach us about economics (and our future), by Alan B Krueger. Hachette. $32.99.
- Alison Booth is a Professor of Economics at the Australian National University, and author of A Perfect Marriage.