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Victor Fernández-Blanco and Juan Prieto-Rodríguez

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Víctor Fernández-Blanco and Juan Prieto-Rodríguez

In this chapter, we focus on the cost structure of cultural industries and the features of costs that are the consequence of digitization. Production of cultural industries is characterized by high fixed costs combined with almost insignificant variable and marginal costs. These characteristics lead, in turn, to decreasing average total costs, that is, the existence of economies of scale. In addition, most fixed costs are not recoverable, that is, they are sunk costs and constitute barriers. Since sunk costs and economies of scale stimulate industrial concentration, we expect a small number of firms with large market shares operating in the cultural industries. Concentration processes in the publishing, music and media sectors seem to corroborate this prediction. Also, under close to zero marginal costs, competitive prices do not cover high fixed cost, implying losses. However, perfect competition is not the expected market structure in the cultural industries, since the existence of few firms will allow them to set prices above the marginal cost.

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Víctor Fernández-Blanco and Juan Prieto-Rodríguez

Following an economic perspective, we analyse museums as economic agents. We assume that museums’ decisions can be analysed as guided by economic behaviour, that is, the maximization of an objective function under a set of economic and institutional restrictions. From this perspective, we allow room for various objectives, including the maximization of attendance and the maximization of profits. As economic agents, on the one hand, we can study how, by combining different inputs, museums produce different outputs, some not related to their collections. On the other hand, museums face different demand functions (one for each of the outputs). In this chapter, we outline the main characteristics of both the demand and supply sides of museums and, then, we study the logic of their incentives, which may or may not be defined by the market. Finally, museums may generate important externalities and, hence, these externalities can be considered as another social output.

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Víctor Fernández-Blanco, Luis César Herrero and Juan Prieto-Rodríguez