Abstract
Do lower input prices to creative production reduce output prices or do they increase product variety? We propose an evolutionary model connecting price dynamics in input markets to innovation and variety generation in output markets. Lower input prices may be competed away in market share dynamics, but they may also induce a fall in the opportunity cost of entrepreneurial experimentation, leading to increased variety in output markets. Increased variety in creative output markets (i.e. niche creation through conceptual revolution) is explained here as a consequence of the entrepreneurial opportunities due to falling input prices. This falling-input-price-induced niche proliferation mechanism is examined with price and genre data from the music industry. We find that falls in input prices do seem to correlate with music genre proliferation.
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