There's No Such Thing As Indie Economics?
Here are some words you'll probably never hear in an economics lecture: DIY, artisan, craft, and indie.
That's because most of the economics world passes over a small, but significant, corner of the economy rooted in anti-market activity and anti-establishment ideas. The punk spirit exhibited by bands like Fugazi, which actively and purposefully eschew the standards and practices of the music industry, is all but nonexistent in the academic world (even though the business practices of Fugazi are quite clever, and don't stray too far from The Theory of the Firm ).
Economics is much more concerned with the companies that fit their existing models - companies like Wal-Mart or General Mills. The Guys Who Fit The Models compete on price in a competitive market (unless they can wield monopoly power, in which case they totally will!), take advantage of economies of scale, and treat consumers and products as faceless commodities. These types of business do make up the vast majority of the US and UK economies, so it makes sense that they get most of the attention.
But they're missing out on a whole different world that rejects the typical producer theory story. Just scratching the surface, there's Pearl Jam and their Ticketmaster fight, Creative Commons licensing, coffee shops that take ten minutes to craft your morning cup, and many more. I intend this to be just the first of several posts about indie economics, so for now I'm jotting down a few thoughts on the subject.
Consider that about one out of ten dollars spent on beer in the US goes to craft breweries. These tiny breweries that don't compete strictly on price (because they would always lose to AB InBev, the worldwide leader in making beer) but are still successful enough to keep their doors open.
But can you, or should you, be able to write off indie and craft businesses as selling a non-comparable product - which allows economists to wave their hands and avoid asking deeper questions about indie businesses and how their strategies can be successful? It would be convenient to say yes, since that would mean we're really talking about two markets that have different characteristics, products, and consumers. But I'm not convinced that we should be able to write off indie businesses so easily. A lot of the time, the product from indie businesses can't really be differentiated from that of the Guys Who Fit The Model.
Since we're in the beer world, think about two products that are roughly the same quality and price: Blue Moon Belgian White and Ommegang Witte. Both are Belgian-style white ales with good reputations. But a significant group of consumers will buy the Ommegang beer instead of Blue Moon just because Blue Moon is owned by MillerCoors - a brewing behemoth with over $1.2 billion in annual revenue. Ommegang, on the other hand, is a small brewery in upstate New York that brews with traditional Belgian techniques, owned by an artisanal Belgian brewing company.
Why the different outcomes? This, for me, is a fundamental question about indie businesses and the economic world. In all honesty, I don't know a ton about the field of industrial organization, so maybe there is an explanation for all this that I haven't encountered. But my feeling is that the topic is ignored by economic academia. But the existence of this alternative world is evidence of something - whether it is values-based purchasing, social class signaling, or just *makes condescending economist face* artists who don't understand money.
For now, here are a few one-off thoughts about indie economics, some of which I want to discuss more in the future:
- Bands like Radiohead and Nine Inch Nails have released pay-what-you-want albums. You could download them for free, but you could also chip in any amount you'd like in exchange for their music. Even though it would make sense for consumers to take the album without paying, relatively few did. The average price paid was even higher than the conventional retail price would have been! It tells me there is something going on here that complicates orthodox thinking.
- There are machines that make good bread and coffee, even perfectly, at costs that are cheaper than by hand. But many firms actively choose to make bread and coffee (and many other things) by hand, in small batches nonetheless. Economics might think that the owners are inept, but are they really? Is it a marketing ploy? Or is something else going on?
- Kickstarter. I'm sick of it, but nonetheless, it's the anti-market activity smash hit of the world wide web.