Puzzled

Seeing as how I am an economist (at least that's my paying job) and a new semester is about to start, I thought I'd throw out an econ puzzle and see if you guy's can help me with it. First, a little background ...

One of my very favorite topics to teach in microeconomics is the concept of price discrimination -- charging different prices for the same product. Most common cases are examples of either 2nd degree PD, in which you charge different prices for the 1st, 2nd, ... units (think of a "buy one, get one 1/2 off scheme), or 3rd degree PD, in which you charge different prices to different groups of people (student discounts, ladies night at bars, etc.). I really like discussing 3rd degree PD because once the students catch on, they realize just how many times they encounter this AND they realize it's not always a bad thing for them.

Anyway, probably my favorite example of 3rd degree PD is the book publishing market. For example, readers of this blog may remember that my current favorite "pop econ" book is The Undercover Economist. Actually, my favorite is The Undercover Economist. No, you don't have to click on both links. The first is the hardcover edition (list price of $26) and the second, released a year or so later, is the softcover (list price of $14.95). I've looked at both. They are identical in terms of page numbers, print size, etc. The only difference is the fact that the first has a rigid cover. Oh and the release date.

See, that's the key. Book publishers know that some folks want a book early and are willing to pay for it. Others might be convinced to buy the book, but not for $26. Hence, the two tiered pricing scheme allows book publishers to capture more of the high willingness to pay from the eager beavers without sacrificing later sales to more reluctant purchasers. It's genius. [Note, there is a small cost difference between producing the hardcover and softcover books, but it is NOT an $11 difference.]

So that leads me to my puzzle. Why does the music industry do the exact opposite? Following the publishing industry, it seems music companies should charge a premium for new release to appropriate more of the consumer surplus from the dedicated fans who "have to have" the new Ryan Adams CD [A disappointment, by the way. Almost every new CD of his claims to be the new Heartbreaker or Gold and they never are.] and then cut prices later to lure in the fence sitters. Instead, I was able to get it for $9.99 at Best Buy the day it was released while it would cost me $13.98 to get it at the same store now. That just makes no sense to me. I have a gut feeling that it has something to do with the fact that music companies cannot (or at least do not) produce two distinct versions of the product. That is, there's not even the minor difference of hard cover vs. soft cover. Still, though, I can't quite come up with a cogent explanation. I suppose "positive buzz" and "word of mouth" from high early sales would be important, but wouldn't that be true in the book world too?

In the end, I'm puzzled. I'm thinking I'll have my students work on this this semester and I thought I'd test it on you guys first. So let me know if you have any thoughts. If not, well that's okay too.