Online Music Saves Oil

This [unedited] guest post is by a student in my EEP100 class (background post).
Please praise/critique/comment on its economic quality and importance to you.

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Michelle Kim says:

We constantly weight how much you really want a product against how much it costs. From that point, we attempt to make the most sound decision about buying a product. People try to chose the best thing they can afford. In this particular case, let's take a look at consumer preferences between CDs (x1, x2) bundles and music downloads (y1, y2) bundles. For consistency, we can assume that consumers prefer music downloading over albums or (x1, x2) < (y1, y2). Technology has progressed so quickly over the past twenty years that in 2003, mp3s and sources like iTunes offer the same music for a fraction of the cost. For statistical purposes, I found that the total album sales fell from 666.7 million in 2004 to 618.9 million, according to Nielsen SoundScan, a drop of 7.2%. In contrast, digital track downloads, rising from 150% to 352.7 million. From such example captures the behavior of consumer's preference and the rising demand of certain goods.

Now let's examine the utility such digital download technology brings for a consumer. The digital-download sphere is a different business in that it allows to buy individual songs rather than albums, giving the consumer more options and flexibility. Also, the consumer benefits from lowered price of music, which is possible because of lowered fixed and variance cost (quite dramatically). With digitalization of music, you also reduce the environmental trade-offs. For example, CDs are processed from bauxite into alumina and then aluminum, which all require crude oil with natural gas and other chemicals for a manufacturing plant. Additionally, the firm needs to package the album with clear or colored plastic cases. Once they are packaged, they are sent to distribution centers, retail outlets, or other locations. Now, such transportation by plane, truck, or rail requires use of fossil fuels for energy, contributing to climate change. With digital-downloads, you can utilize central clearing house for more online use. Such method reduces the environmental cost and other costs, which make purchasing of music more cheap.

Bottom line: The idea of preference is based on the consumer's behavior, and the industry must devise new ways to maximize its capital from this shift in music purchasing practices.