The importance of quality: How music festivals achieved commercial success

This paper examines the characteristics that are important to current commercially viable massive music festivals when making decisions on who to hire while facing horizontal and vertical quality differentiation with heterogeneous preferences among intended consumers. A model of customer demand motivates the empirical analysis using a unique bundling problem in which the consumer faces an unknown element, depending on festival reputation for expected utility. The empirical analysis utilizes characteristics important to the negotiation between the festival and the band as input. Musical acts with an album recognized as being of a high quality are about 33 % more likely to be hired by a festival in the year of release and 50 % more likely the following year. A top touring band is 40 % more likely to be hired in the first year, but 45 % less likely to be hired in the following year, likely due to an increased cost of hiring. Festivals hire quality, unknown bands to take advantage of the lower costs of lesser known acts by leveraging a reputation for evaluating quality before the consumer. Other industries face similar input decisions, giving the results a broader application.