Edited by Ruth Towse and Trilce Navarrete Hernández
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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