I was at the mall just before Christmas and wound up in an entertainment store that had a rack with vinal records. It had been a while since I’ve looked at them, so I went over and I was stunned at the prices. Prices for many albums were $30 or $40 each. These didn’t seem like the collector’s albums that would fetch premium prices, they were regular vinyl albums made by contemporary artists.
How Much is a Typical Vinyl Album?
Perhaps I was just looking in the wrong place. Some stores can be more expensive, of course. But looking into this a bit more, what I saw wasn’t abnormal. Here are some prices on Amazon for albums. First, Taylor Swift:
$38 for an album that anybody could simply listen to at home! What about Post Malone? His album - after tax - costs about $50!
I could show more, but you get the idea. One vinyl album typically costs double to triple what a CD costs. And this might understate how expensive these are, given many people stream unlimited music for $10/month or less.
All this is puzzling. Vinyl albums were replaced by cassettes, CDs, and streaming decades ago because albums were less convenient and had lower-quality sounds. Now, those who collect vinyl albums must pay a small fortune for them.
Watch on YouTube
Why are Vinyl Records More Expensive?
So what’s the reason? Exploring the issue, there are several economic phenomena at play that all lead to the higher prices for vinyl now. Let’s go through four reasons for higher vinyl album prices.
Reason 1: Fewer Vinyl Albums Produced = Higher Cost per Album
When vinyl records were the main option and hundreds of millions were sold annually, there were more production plants and each production plant could print a lot of albums. This meant the fixed costs of the production plant were spread over a large number of individual albums - and the record industry enjoyed what economists call economies of scale. The machinery could be used nearly constantly to produce albums and therefore the price per unit produced was lower.
For a simplified example, imagine that a production plant costs $10 million to run. If that plan prints 50 million albums in a year, the average cost of the production plant per album is $0.20. If a production plant only prints 2 million albums in a year, however, the average cost is $5 per album.
Even with the recent resurgence in vinyl popularity, sales are a fraction of what they were (under 10% of the peak). Therefore, the fixed costs are being spread over fewer albums produced and that cost gets passed along to consumers in terms of higher vinyl prices.
But there is something about this that doesn’t completely add up: vinyl albums now sell more copies than CDs. And we aren’t seeing the same problem with CD production. (It could be that the same production also works for blu-rays or DVDs, of course, but clearly the low sales alone aren’t everything here.)
Reason 2: Production Facility Fire Causes Supply Issues
In February 2020, a California fire destroyed a key production facility for vinyl records. This decreased the supply capabilities for vinyl records, and standard economic analysis shows us that a decrease in supply will cause an increase in the price.
Often, when there is a fire to a production facility, that firm or other firms would rebuild quickly to fill the market and earn profits. But given vinyl records are well past their prime in terms of annual sales, this fire had a more substantial economic impact than what we would normally see. Further, Covid supply-chain issues hitting many other industries shortly after the fire certainly wouldn’t have helped.
Reason 3: An Opportunity to Price Discriminate
Once upon a time, to listen to your favorite artist, people bought a vinyl album. Now, with streaming services, high quality music is available to everyone for free - or nearly free. Nobody needs to buy an vinyl album. So who is buying them? The biggest fans of the artists and those who have enough money - and willingness to pay - that they don’t paying the price. Or, those who just like collecting vinyl albums.
This gives artists a chance to price discriminate, which is the process of charging different people different prices for (essentially) the same product. Artists (and record companies) can use vinyl albums as a way to extract higher sales and profits from those willing to pay more while not losing sales for those only willing to stream (or listen in another less expensive method).
It is as if the fans of vinyl are wearing a big sign saying they will spend a lot of money on their favorite artist. And, naturally, the firms will take advantage.
Reason 4: Environmental Production Methods Can Cost More
Vinyl albums are not good for the environment. To combat this, some artists, notably Billy Eilish, are going with more environmentally friendly methods to produce vinyl albums which would almost certainly be more expensive. Given the extra expense, we’d expect extra costs to be passed onto consumers.
Given a consumer likely won’t know how an album was produced, even record producers who don’t use environmentally friendly methods might use the opportunity to either falsely claim they are using these methods or be ambiguous and still enjoy the higher prices that are being seen for vinyl albums. Economists would call this a credence good - a product where consumers won’t even “know” how something was produced after consuming it. (Other common examples of a credence good are genetically modified food products or medical advice from a doctor.)
Are Higher Vinyl Prices Here to Stay?
This is an interesting question and I don’t know the answer to it. Given the last point and the increasing demand from consumers for environmentally friendly products, I have doubts that the vinyl market will get too much bigger. But if it stays where it is, all the points above - with the exception of the production plant being knocked out by a fire - will still be just as relevant.
Did I miss any other reasons? Please leave a comment if I did!