A forecast that online music will end up with a few or only one seller will prove correct if online music firms do what?
In the early 2000s, analysts were predicting that although many legal music download sites would start up, that becuse of the technology, only a few, or perhaps even just one, would survive.
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This is really a question about what causes monopolies to exist. There are three typical causes of monopolies. They are:
- Ownership of a vital resource. If one firm owns all of something that is necessary to participate in the market, that firm can have monopoly power. In the case of music firms, this might be ownership of the right to sell the songs. The market might end up in a monopoly if firms enter exclusive contracts so that no other firm can sell a given artist's music.
- Legal barriers. Governments sometimes grant monopolies. This does not seem likely in this case.
- Economies of scale. If it is cheaper to sell more of the product than less, one big company will sell more cheaply than two small ones. This causes a monopoly to occur. This does not seem likely to occur in the online music business unless large companies can get better deals for the rights to music (ownership of a vital resource).
Having looked at these possibilities, this prediction will prove correct if online music firms enter into exclusive contracts so that only one firm can sell any given artist's music. This will lead to a monopoly as artists gradually choose to go with the one firm that is biggest and is most likely to be able to attract customers.
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