On the “uniform pricing puzzle” in recorded music

- We model record companies' pricing when consumers cannot initially observe quality.
- Advertising is shown to be ineffective as a signal of quality.
- Ex ante investment in expected quality makes price pooling more likely.
- We argue that record companies' high A&R expenditure constitutes such ex ante investment.

This paper proposes a possible explanation for uniform pricing in the recorded music industry, based on a pooling equilibrium across different quality types. We show that an ex ante ability to invest in the probability of success - which we identify with record companies' artists and repertoire (A&R) expenditures - makes such a pooling equilibrium more likely.