How do music market changes affect consumer demand and welfare? An experimental approach
We use choice data generated out of experimental music markets to estimate an AIDS complete demand system for musical genres (Pop-Rock, Classical, Rap-RnB, Blues-Jazz). Own and cross-price elasticities are estimated for two market structures, monopolistic and Bertrand competition, and several groups with similar listening habits. The estimated parameters of the demand functions for every group and market structure are then used to compute the change in consumer surplus associated with a potential change in market structure. We find that groups adopt different strategies in front of changes in market structure and the associated competitive pressure on prices. The groups who love classical genres of music are harmed more than others by a large price increase but they manage to alleviate the welfare cost by systematic exploitation of increased price volatility.