Economics of Superstars

Here's the wikipedia explanation of Sherwin Rosen's classic theory of superstars.

Sherwin Rosen (1981) examined the economics of superstars to determine why “relatively small numbers of people earn enormous amounts of money and seem to dominate the fields in which they engage.” Rosen argues that in superstar markets, "small differences in talent at the top of the distribution will translate into large differences in revenue." Rosen points out that "...sellers of higher talent charge only slightly higher prices than those of lower talent, but sell much larger quantities; their greater earnings come overwhelmingly from selling larger quantities than from charging higher prices"

A new example of this is Rush Limbaugh's new deal. Drudge writes:

In what is being described as an unprecedented radio contract, Limbaugh will keep his syndicated show on-the-air and e-v-e-r-y-w-h-e-r-e through 2016 with CLEAR CHANNEL and PREMIERE RADIO.

Already host of the most lucrative hours since radio's inception, Limbaugh's total package is valued north of $400 million, according to media insiders.

The NEW YORK TIMES will claim this weekend that Limbaugh, marking 20 years this summer as a national host, has secured a 9-figure signing bonus for the new deal, newsroom sources tell DRUDGE.

In its controversial profile, the TIMES reports that Limbaugh is buying a new G550 jet and is making an estimated $38 million a year.

There are a lot of conservative talkshow hosts, and the differences among them are small, but because of superstar markets, they are enough for Rush to capture nearly the entire market. In Rosen's model, technology plays a key role in superstar markets, since technology expands the storage capacity of demand. Years ago, superstars were confined by the physical constraints imposed by the acoustics of an auditorium, but now Rush's voice can be heard anywhere, anytime, in perfect quality. I've also always wondered if a Democratic administration isn't ultimately better for Rush (and vice versa for Republicans and Democratic superstars like Kos), which would mean an Obama win - which is likely - is good for Rush's show. It's so much less disillusioning to be the one out of power than it is to be the one in power, since politics is ultimately a median voter theorem game, but the true believers are nowhere near the median.