A Huffington Post article written by Drew Guarini (click here for the link) suggests that from 2011 to 2012, the aggregate purchase of music, including both physical and digital music, rose by 3.1%, while the purchase “physical music,” as this articles puts it, such as CDs fell by 12.8%. Because the purchase of CDs fell while there was an increase in the total consumption of albums, we can conclude from this statistics that consumers have become more willing to consume music digitally than physically. Expectedly, the articles mentions online stores such as iTunes and Amazon as the factors that have contributed to the trend described above. For this blog post, however, I want to analyze deeper about this issue using economics tools that I have learned in this class so far.

Obviously, many people prefer digital music to physical music for conveniency. In this 21st century, people carry music everywhere, whether they go on a hike or shop groceries. With the invention of the substitute goods of CD players such as portable music player devices or iPhone, which even has built-in MP3 players, carrying an additional round CD player has now become a burden. A wallet on one pocket and an iPhone on the other, there is simply no more room for people to carry the device around in our daily life. Everything becomes so easy when you just purchase songs on iTunes and put them directly into your iPhone playlist. Digital music is even more attractive because you don’t have to worry about your property being stolen or lost. Even if you somehow lose your digital songs, you can always go back and re-download them for free.

Another economic concept that can explain why people prefer to shop music online is because of the opportunity cost of buying a physical CD. For example, let’s say that I am drinking a cup of coffee at Starbucks when the Beatles’s two hit songs, Let it Be and Sergeant Pepper’s Lonely Hearts Club Band, are being played through the radio. These songs are phenomenal, so I want to purchase them right away. Fortunately, with my iPhone that contains an iTunes application, I can instantly download these songs within less than a minute. Thus the opportunity cost here is nearly zero excluding the price I have paid to purchase the songs. If there were no online purchase of music, however, I would have to make a trip to a store to buy these songs, which takes time and the cost of gasoline (as I will most likely be driving there) that could have been spent differently yet more meaningfully, such as studying for my test or exercising. Thus, the opportunity cost of physically going to a store to purchase music has a higher opportunity cost than the opportunity cost of instantly downloading them through online.

Continuing with the Beatles example above, utility is another factor that can affect people to purchase online music instead of physical music. Let’s assume that a Beatles album costs around $15 (as is on Amazon) and that I only have $25 in my wallet. Unfortunately, if purchase of physical album is the only way for me to get the album, it is impossible for me to acquire both songs that I want because they are from two different albums. Ultimately, I would have to give up one song to purchase the other because if I want to purchase a song from a physical album, I have to buy the whole album. I can’t just buy a part of the album that contains the song that I want. On the contrary, I can make a single song purchase on iTunes for a little bit over $1. Using iTunes, I would be able to get the two songs that I wanted without having to buy the full albums. In the end, I will have maximum utility and approximately extra $23 ($25 – $2) that I can happily spend on other goods. This will allow me to more accurately and selectively allocate my resources.