Gift or investment: Lil Wayne edition

Over at the excellent intersection between anthropology and economics blog, there is a discussion about the Lil Wayne, his latest album, and how this fits into the idea of a gift economy.

[Disclaimer: I haven’t listened to Lil Wayne, so my knowledge on the marginal benefit of his music is severely limited.]

Here the question is asked:

Specifically: who’s going to buy this album when they have been so generously gifted with Carter’s work for free?

But it has been popular – very popular. This raises the next query:

It may be that Lil Wayne has succeeded here because he is, in the opinion of Rolling Stone, the “best rapper alive.” If you are this good, ubiquity and generosity have no penalty. Free for all or fee for all, it doesn’t matter. We have to listen. But intuitively this seems wrong. Surely the incentive for “giveaways” should be more pressing for lesser talents.

This is what I would like to discuss more, in context of a “gift economy”.

I should be explicit here that I don’t believe that the fundamental idea of a “gift economy” is significantly different from the current conception of what an economy is. A person gives a gift for two reasons: To directly get satisfaction or to promote a reciprocal action – so giving a gift in this case is either a consumption choice or trade. In this sense, a gift economy is likely to be a more inefficient means of achieving what we have already.

However, I digress – the question at hand is, why may Lil Wayne have a strong incentive to pump the market full of free material?

Altruism or investment

There are two primary reasons I can see Lil Wayne flooding the market with his music. The first reason gives us warm fuzzies to think about – altruism.

In this argument, he realises people enjoy his music, and gains satisfaction from the fact that they are listening to it. However, this potential explanation is a bit fluffy as it does not explain why he sells some music, and gives other music away for free.

The other explanation is investment. If releasing free music increases the benefit people get from listening to the music that is sold, there may be a case for pumping out free tracks in order to increase the sales of albums.

Usually, this argument is used for new artists – as an unknown artist is like an experience good (you don’t know what payoff you will get from consuming their music). However, Lil Wayne is famous, so he is not an experience good.

Instead, Lil Wayne music must have addictive properties – the consumption of a song now must increase the marginal benefit of consuming another song later. If this is the case, then Lil Wayne will have an incentive to pump free music out – to increase demand for his songs later. Fundamentally, this states the Lil Wayne songs are complements rather than substitutes.

But why aren’t lots of other artists doing this?

Well, according to the intersection, Lil Wayne is an incredibly gifted artist – not just in the sense that he is good, but in the sense the making music is relatively “low cost”.

If Lil Wayne has a much lower cost of making music than other artists, he will make more free songs – even if the “addictive” benefit was the same.

Why is this? Well, the artist chooses to set the Marginal Cost = Marginal Benefit of releasing free songs in equilibrium, as Lil Wayne’s marginal cost is lower. As the marginal benefit falls in the number of actions (each additional song adds less additional value to the other songs) this implies that the equilibrium choice of free music will be higher!

Conclusion

It appears to me that Lil Wayne is using the market fundamentals specific to his music type and his cost curve to maximise profit – sounds good to me.

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  • As IP becomes weaker, albums become loss-leaders for concert promotion.

  • Another driver could be that he’s bought publicity (including this discussion;-) ) by giving away the music.

  • “As IP becomes weaker, albums become loss-leaders for concert promotion.”

    Very true. However, this doesn’t explain why his album did so well following all the free material – which is why I went for the explanation I did.

    “Another driver could be that he’s bought publicity (including this discussion 😉 ) by giving away the music.”

    Old publicity – I guess it’s cheaper than doing a McDonalds ad 😉 (both in terms of money and reputation cost)

  • Progress doesn’t come from early risers, progress is madeby lazy men looking for easier ways to do things.

  • IRS

    The face is the soul of the body.LudwigWittgensteinLudwig Wittgenstein

  • We have similar examples of this in NZ, mainly for promotion of upcoming albums, for instance The Misfits of Science gave away bang free for NZ Music Month and the Wall of Sound gig (Shameless plug: coming up this friday, Aug 1 at fu and Zen more info visit http://www.themashupmafia.com) and Optimus Gryme did the same with his dubstep remix of funnily enough Lil Waynes “A Milli” for his Anniliation of Ego Ep (released today, release party was on friday) both of which have helped build up hype for the albums/gigs.

    I’d suggest itsa mix of altruism and investment, for instance, the 2nd example is a bootleg/remix, so probably wouldn’t get clearance for an official release anyway – so better to give it away (and hope that the lawyers don’t come running), whereas the Misfits track was for NZ Music Month (but again hadn’t released an album for a while, so it does help promote their brand).

    I’d side with investment over altruism on both, though I don’t think it fits the definition of altruism, as in order to be altruistic, someone else benifits from your loss. There isn’t a loss here, only an opportunity cost of*potential* future sales… which can be balanced by… potential future sales of other product.

    Hope that makes sense.

    Basically, agree with your conclusion!

  • Hi MikeE,

    Thanks for the comment – interesting stuff 🙂

  • No worries … nice to find a practical use for economics 😛