Handbook of Cultural Economics, Third Edition
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Handbook of Cultural Economics, Third Edition

Edited by Ruth Towse and Trilce Navarrete Hernández

Cultural economics has become well established as a subject of interest for students and teachers of courses ranging from economics to arts administration as well as for policy-makers and practitioners in the creative industries. Digitisation has had a tremendous impact on many areas of the creative economy and the third edition of this popular book fully reflects it.
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Chapter 13: Cost of production

Víctor Fernández-Blanco and Juan Prieto-Rodríguez

Abstract

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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