Industrial Organization : THeory of the Firm, Vertical Integration and Contract Theory
6 important questions on Industrial Organization : THeory of the Firm, Vertical Integration and Contract Theory
What are, according to Caves (2000), the eight basic economic properties of the Creative Industries that are specific to the Creative Industries and underpin their organization and structure?"
- Nobody Knows principle.
- Sunk Costs.
- Art for Art's Sake principle.
- Motley Crew (unusual mixed group) principle.
- Infinite Variety principle.
- A List/ B List principle.
- Time Flies Principle.
- Ars Longa principle.
In Economic Properties of Creative Activities, Caves (2000) delineates the 'Nobody Knows principle' as one of the eight basic economic properties specific to the Creative Industries, underpinning their organization and structure.
Can you explain what this principle means and point out how it highlights a difference between the Creative Industries and other areas of the economy?
- The creative economy deals with symmetrical ignorance.
- In a situation of symmetrical ignorance:
- The producer doesn't know how a product will be received.
- The buyer doesn't know how good a product is before buying it.
- Other areas of the economy deal with information asymmetry.
- A lot of risk, because both producer & seller are in the dark.
- Another dimension: internal vision/external manifestation is uncertain.
- Creators don't know if their vision will be appreciated.
- Pervasiveness of the option contract.
- Some Risks are mitigated as each new step in the creative process can re-evaluate the product up to that point.
In Economic Properties of Creative Activities, Caves (2000) delineates the 'Motley Crew principle' as one of the eight basic economic properties specific to the Creative Industries, underpinning their organization and structure.
Can you explain what this principle means and point out how it highlights a difference between the Creative Industries and other areas of the economy?
- Substitute Goods: In other areas of economic production, products can be made with substitutable/replaceable inputs.
- Creative Industries: Creative products have inputs that require diverse skills and cannot be substituted.
- E.g., stars in films, top screenplay writers, high quality soundtrack.
- Producers have to make smart choices about whom to hire.
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In Economic Properties of Creative Activities, Caves (2000) delineates the 'Infinite variety principle' as one of the eight basic economic properties specific to the Creative Industries, underpinning their organization and structure.
Can you explain what this principle means and point out how it highlights a difference between the Creative Industries and other areas of the economy?
- Quality Differentiation.
- For most products it holds that, if the price is nearly the same, the choice between product A or product B depends on which one has a higher quality level.
- Creative Products.
- The quality level of the product can only be inferred after the consumption of the product.
- There are a myriad of creative products to choose from for the consumer.
- Infinite possibilities for creative products and endless creative ideas, BUT their realization is limited.
- Choices are not only made on the basis of quality:
- Also about the character of products (comedy vs. Horror).
In Economic Properties of Creative Activities, Caves (2000) delineates the 'A-List/B-List principle' as one of the eight basic economic properties specific to the Creative Industries, underpinning their organization and structure.
Can you explain what this principle means and point out how it highlights a difference between the Creative Industries and other areas of the economy?
- Replaceable Inputs.
- In other areas of the economy, inputs might reasonably be substituted.
- I.e., input A can be replaced by input B.
- Hierarchy of Creative Inputs.
- In the creative production their is a clear hierarchy of A list and B list inputs.
- E.g., Casting an A-List actor or a B-list actor.
- Producers of creative products need to manage which parts need to be A-List and which parts can be B-list.
- Moreover, how much can you pay A-list artist before the production becomes too expensive.
In Economic Properties of Creative Activities, Caves (2000) delineates the 'Ars Longa principle' as one of the eight basic economic properties specific to the Creative Industries, underpinning their organization and structure.
Can you explain what this principle means and point out how it highlights a difference between the Creative Industries and other areas of the economy?
- Single Return on Investment.
- In many economic areas the return on a product happens only once.
- E.g., you bake the bread and then sell it.
- Creative Products.
- With creative works, rents can continue to be collected after the initial sale of a work.
- "Life is short, art is forever." Creative products tend to exist for a long time and may even exceed the artist's life.
- E.g., song royalties, cult classic films.
- Shows the importance of copyright and royalty contracts.
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