Competition in digital music

Firms in industries with competition must compete for customers. The firms in each industry must decide what the basis of competition will be in their industry while not breaking anti-trust laws.

For example, the beer industry has clearly decided that they want to compete for consumers based on advertising and distribution. You rarely see a price war break out with Bud Light being priced at cost and Miller Lite being priced at cost trying to win new customers. Both Miller and AB know that if they compete on price they will both lose money. Just look at the airline industry, they compete on price and therefore firms have a very hard time making money.

The digital music industry appears to be trying to figure out what the basis of competition should be. Firms know that to most consumers, digital music is digital music, and therefore if they compete on price, firms on average won't be able to make money. This is why almost every firm offering digital music downloads attempts to lock in consumers in some fashion. Today most are trying to use their DRM technology along with a portable music player to lock in consumers (think iTunes and iPod).

Consumers in the long run won't stand for incompatible music standards and lock-in, but that doesn't mean that firms won't try and establish their technology as the industry standard. This is why Sony launches ATRAC even though there are numerous codecs that are good enough for consumers.