Another Loudness War: How Record Labels Release Singles to Compete for Consumer Attention in the Digital Age∗ Christian Essling1, Johannes Koenen1, and Christian Peukert2 1ifo Institute for Economic Research at the University of Munich 2University of Zurich February 23, 2015 Abstract In markets with thousands of products, firms cannot take it for granted that con- sumers are even aware of their articles' existence. Advertising and actions to attract consumer attention are therefore integral components of a firm’s competitive toolbox. We study firms’ behavior in a perfect example for such a market: The music indus- try, in which consumers can choose from a plethora of albums and songs. We study a specific strategic instrument of firms, single releases, applying unique micro-level data. Arguing that the digitization of the industry via MP3, filesharing, and iTunes amounts to forced unbundling, the role of singles has changed from individual rev- enue generators (pre-digital era) to pure attention gatherers. In accordance with this driving hypothesis, we observe an inverse U-shaped relationship between competition intensity and the number of singles released in the digital era, while previously com- petition had a purely negative effect. Keywords: Consumer Attention, Digitization, Music Industry, Single Releases, Ad- vertising and Competition JEL No.: L82, M37, D83 ∗We are grateful to J¨orgClaussen, Tobias Kretschmer, Martin Peitz, Thijs Peters, Hannes Ullrich and audiences at Marketing Science 2012, Copenhagen Conference on Innovation and Entrepreneur- ship 2014, and various seminars at the LMU Munich and the ifo Institute for valuable comments and discussions. Essling:
[email protected], Koenen:
[email protected], Peukert (corresponding author): chris-
[email protected].