Competition, Selection and Rock and Roll: The Economics of Payola and Authenticity
Mol, Joeri M., Wijnberg, Nachoem M., Journal of Economic Issues
Understanding the way in which value of a product is determined is a prerequisite for understanding the way in which firms compete. To compete successfully one's products have to be valued and recognized as valuable. This is the starting point of looking at competitive processes from the perspective of the selection system (Wijnberg 1995; 2004; Wijnberg and Gemser 2000; Priem 2007). In a selection system, the actors competing with each other are called the "selected" and the actors who determine the value of the goods being offered by the competitors are called the "selectors." It is important to realize that selectors themselves can be involved in their own competitive process. In addition, the competitors who are the selected in the original selection system can be involved in the competitive process among the selectors, supporting particular selectors in their selection system. In the most extreme case, particular selected can ally themselves with particular selectors to support each other in their respective competitive arenas. This theoretical approach will be employed to analyze the events that unfolded after the introduction of Rock and Roll in the U.S. music industry halfway through the 1950s, focusing on the so-called payola scandal.
The cultural industries seem exceptionally suitable for studying the relationship and interaction between the selectors and the selected. This stems from the fact that within the cultural industries the role that the selectors play in the determination of value is generally more visible than in many other industries. The harder it is to determine the value of individual product characteristics, the more valuable is the necessary knowledge and expertise (Hirsch 1969; 1972; Peterson and Berger 1975; Wijnberg 1995; Wijnberg and Gemser 2000; Caves 2000). This in itself increases the value of the services rendered by the relevant selectors, as selectors. It not only increases the likelihood of fierce competition among selectors, but also the likelihood that the selected will attempt to influence the outcome of the competitive process taking place among the selectors.
The story of the rise of rock and roll has been told before, and our retelling will use details found in other sources. The main contribution of the paper is twofold. First, to show how an explanation can be offered for long-term developments within and around an industry by taking competitive processes fully into account, at the levels of both the selected and the selectors. Secondly, by focusing on the interactions between the two competitive processes, it becomes possible to better understand the economics of authenticity as well as the strategic option of competing by involving oneself in the competitive process among one's selectors, as illustrated by the Payola case.
This paper is organized as follows. In the theory section, the framework of the selection system will be explained at greater length, focusing in particular on the possible effect that the competition among selectors has on the relationship between selected and selectors. Next, authenticity will be discussed. This is followed by a presentation and discussion of the case of payola. Conclusions will round off the paper.
Selection Systems and Competition Among Selectors
To make (boundedly-) rational decisions customers need to estimate the value of competing products. This is often a difficult task because of the existence of significant information asymmetries (Akerlof 1970; Nelson 1970; Darby and Karni 1973). The theoretical framework of selection systems (Wijnberg 1995; 2004; Wijnberg and Gemser 2000; Priem 2007) focuses precisely on the question of how customers arrive at estimations of product value, and makes the answer the basis of the analysis of competitive processes.
Three ideal-types of selection systems can be distinguished: market, peer, and expert selection. In the first type--market-selection--customers themselves are able to ascertain the customer utility of a product before proceeding to a commercial transaction. …