Superstars Flashcards
Define superstar phenomenon?
When few people in an industry earn masses amount more than others
4 characteristics of superstar fields of work?
High uncertainty
Normally low entry age (small prop. of entrants become stars)
Large proportion of entrants don’t make a living in the field
Past performance corralled with future outcomes
4 determinants of a salary?
Education Skills Experience Cost of replacement/uniqueness of employee Responsibility/danger pay Past performance
How does Rosen’s model of superstars explain them?
Talent based model:
Small differences in talent -> large earning differences -> emergence of superstars
2 characteristics of Rosen’s model?
Close connection between salary and size of one’s own market
Strong tendency for market size and reward to be skewed towards most talented people in the industry
Explain how preference of customers work in rosens model? (2)
Imperfect substitutes on difference qualities
Quality preferred over quantity
Explain technology’s role in rosens model?
Recording and broadcasting technology allows for joint consumption and tf large market size
(Supply side aspects)
Explain 3 points regarding demand side (ie. What consumers want from a superstar) in rosens model?
Consumers prefer concentrated talent tf pay high premium
Superstar fields often involve solo performances
TF on superstar is not a substitute for another
What does the ability to broadcast mean for superstars?
MC is almost 0 tf cost to sell more once it’s made is almost nothing
Explain convexity of returns to talent and draw both graphs?
As number of people able to do a job falls, salary increases massively. Tf as talent increases salary increases massively aswell
3 constraints on the market power of superstars?
Congestion: ie. Stadium too small
Absence from canned performance: ie. Books, CDs
Potential market entry from close competitors
Explain the idea behind macdonalds theory of superstars?
Dynamic model:
Past performance indicates future performance
What are the two effects behind alders theory of superstars?
Learning process theory
Network effect theory
Explain the idea behind the learning process theory?
The learning process, especially in art consumption, is the key to the superstar phenomenon
What is meant by ‘consumption capital’ wrt art?
The more you learn about art, the more you appreciate it tf you have an increasing marginal utility of consumption as consumption increases
Explain the idea behind the network effect theory?
Idea: stars can emerge even among equally talented individuals
Consumers have limited demand for ‘favourites’ so they choose one tf if consumers tend towards one popular one, over time this one will gain lots of popularity (even if they have little/no extra talent)
Explain why there is market failure in discovery of talent?
Talent can only be revealed on the job -> evaluation of talent tf has high costs (BUT high rewards)
Explain some evidence supporting rosens effect?
Football salaries show cover structure of rewards (Lucifora ‘03)
Explain some evidence supporting adler’s effect?
CD sales - found ‘artistic outputs will be concentrated on a few lucky individuals’ tf evidence of adler’s effect (Chung ‘94)
Explain Hamlen’s work (1991) on quality of voice and sales?
Found no evidence of rosens effect
Dependent variable: total record sales
Explanatory variables: talent, experience, other attributes (sex, race etc)
Explain baseball evidence in rosens effect?
Found experience more important than talent tf against rosens effect (blass ‘92)
How are rockstar tickets priced?
Star quality proportional to price of ticket (large increasing returns to superstardom)
5 favourable data characteristics for testing superstar theories?
- objectively measurable talent
- rarity can be separated from talent
- superstars exist
- precise earning data
- negligible roles of managers
2 issues with collecting data to test superstar theories?
Wages Unknown/fragmented/can’t be accessed
Stars are unique tf difficult to compare
