In an age where rock stars spend most of their time denouncing businesses and profits, it’s rare to see a talented musician not only practice free market capitalism but also defend it.
Jack White (of White Stripes fame) is displaying his fluency in basic economics via his personal record label Third Man Records [which we’re going to pretend is a reference to the Carol Reed classic].
Third Man Records, puts out limited prints of records in order to meet customer demand “to be involved in collecting rare and interesting vinyl.” There is a problem with this though. If you make something rare and valuable, the market price will be high.
White found out the hard way that if you market a product as “rare and valuable” and then artificially price it too low, people will buy that product in bulk and resell it for what people are actually willing to pay.
And that’s exactly what happened: people bought up dozens of the low-priced vinyls for practically nothing and then "flipped" them for hundreds of dollars on eBay.
This is where it gets interesting.
“Many artists in this position would complain about the greedy resellers and that would be the end of it,” Forbes’ Adam Ozimek writes.
“But White realized that 1) if customers want rare and valuable albums they will be expensive, 2) the market price will be reached no matter what they sell them for initially, and 3) if someone is going to profit it might as well be the creators,” he adds.
Instead keeping the price artificially low, White decided to auction the vinyls and let market demand dictate what people would pay for them. He soon discovered that people were willing to pay up to $300 for the privilege of owning a “rare” vinyl.
Of course, once White started doing this, people who don’t understand market demand and the idea that you pay a premium for a niche product complained that the auctions were “exploitative.”
But White isn't backing down. His business model makes sense and he knows it:
We sell a Wanda Jackson split record for 10 bucks, the eBay flipper turns around and sells it for 300… If 300 is what it’s worth, then why doesn’t Third Man Records sell it for 300? If we sell them for more, the artist gets more, the flipper gets nothing. We’re not in the business of making flippers a living. We’re in the business of giving fans what they want.
He went on to point out that "rare and valuable" is what drives the price:
…make no mistake, we could make twenty thousand split color whatevers for you, and they’ll be worth 20 bucks, and you’ll pay 20 bucks for them, and you’ll never talk about them, desire them, hunt to find them, etc. why should ebay flippers, who are not real fans, dictate the price, make all the profit (taken from the artist and the label) and take the records out of the hands of real fans. there’s a guy who waits in a black suv down the block from third man who hires homeless people to go buy him tri colors when they are on sale. doesn’t even get out of his car. should he be charged ten bucks or two hundred? don’t be spoiled, don’t insult people who are trying to give you what you want.
Of course, as Forbes notes, the “flippers” don’t dictate price, the supply of vinyl and market demand sets price [but we’ll let that slide].
“Jack White is clearly a man who thinks like an economist. By giving the profit to the creators instead of the resellers, this gives White, Third Man, and their artists more incentive to create more albums,” Ozimek writes.
Nevertheless, some "fans" are still complaining that they can’t get a premium niche product for free. White has a message for them:
don’t get mad at third man for giving you exactly what you’ve asked for. and seriously stop all of the whining, because what you communicate to us is that all of the trouble we go to isn’t worth it because nothing we do will make you happy.
Front page photo source/This story has been updated.