THE BLAZE---In an age where rock stars spend most of their time
denouncing businesses and profits, it’s rare to see a talented musician not only practice free market capitalism but also defend it.
Jack White (of
White Stripes fame) is displaying his fluency in basic economics via his personal record label
Third Man Records [which we’re going to pretend is a reference to the
Carol Reed classic].
Forbes explains:
Third Man Records, puts out limited prints of records in
order to meet customer demand “to be involved in collecting rare and
interesting vinyl.” There is a problem with this though. If you make
something rare and valuable, the market price will be high.
White found out the hard way that if you market a product as “rare
and valuable” and then artificially price it too low, people will buy
that product in bulk and resell it for what people are actually willing
to pay.
And that’s exactly what happened: people bought up dozens of the
low-priced vinyls for practically nothing and then “flipped” them for
hundreds of dollars on eBay.
This is where it gets interesting.
“Many artists in this position would complain about the greedy resellers and that would be the end of it,”
Forbes’ Adam Ozimek
writes.
“But White realized that 1) if customers want rare and valuable
albums they will be expensive, 2) the market price will be reached no
matter what they sell them for initially, and 3) if someone is going to
profit it might as well be the creators,” he adds.
Instead keeping the price artificially low, White decided to auction
the vinyls and let market demand dictate what people would pay for them.
He soon discovered that people were willing to pay up to $300 for the
privilege of owning a “rare” vinyl.
Of course, once White started doing this, people who don’t understand
market demand and the idea that you pay a premium for a niche product
complained that the auctions were “exploitative.”
But White isn’t backing down. His business model makes sense and he knows it:
We sell a Wanda Jackson split record for 10 bucks, the
eBay flipper turns around and sells it for 300… If 300 is what it’s
worth, then why doesn’t Third Man Records sell it for 300? If we sell
them for more, the artist gets more, the flipper gets nothing. We’re not
in the business of making flippers a living. We’re in the business of
giving fans what they want.
He went on to point out that “rare and valuable” is what drives the price:
…make no mistake, we could make twenty thousand split
color whatevers for you, and they’ll be worth 20 bucks, and you’ll pay
20 bucks for them, and you’ll never talk about them, desire them, hunt
to find them, etc. why should ebay flippers, who are not real fans,
dictate the price, make all the profit (taken from the artist and the
label) and take the records out of the hands of real fans. there’s a guy
who waits in a black suv down the block from third man who hires
homeless people to go buy him tri colors when they are on sale. doesn’t
even get out of his car. should he be charged ten bucks or two hundred?
don’t be spoiled, don’t insult people who are trying to give you what
you want.
Of course, as Forbes notes, the “flippers” don’t dictate price, the
supply of vinyl and market demand sets price [but we’ll let that slide].
“Jack White is clearly a man who thinks like an economist. By giving
the profit to the creators instead of the resellers, this gives White,
Third Man, and their artists more incentive to create more albums,”
Ozimek
writes.
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