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Labor cost does not determine a product's sale price. That is a disastrous myth. Demand changes selling price. If a company cannot price to sell to their demand

Labor cost does not determine a product's sale price. That is a disastrous myth. Demand changes selling price. If a company cannot price to sell to their demand because of capital or labor costs, the free market has stated that the business is not viable.

Wohlf 8y ago
You are correct, but I would caveat that labor cost is just one of many factors in determining the minimum price a product can be profitably sold at.
jakeinspace 8y ago
For any particular company or even country to some extent (since the games industry is quite globalized), this is true. However, if there were widespread unionization among many of the biggest studios then that could conceivably lead to a market-wide price hike, which would be largely absorbed by consumers due to a lack of suitable substitutes. Yes, the supply/demand equilibrium point would shift and demand would likely drop somewhat, but I think it's quite likely that the market demand for top-tier games isn't perfectly elastic.
- Retric 8y ago
  The optimal selling price for a game does to change becase developers add a fixed cost. Suppose you have 1 Billion in fixed costs and 1$ in per unit cost and are given two options. The equation is just (number sold) * (unit price - unit costs) and that 1 Billion dollar fixed cost is irrelevant when maximizing profit (or minimizing loss). What it would do is reduce the number of games created, as the industry becomes slightly less profitable. Which would then spread consumer spending over fewer titles and thus recuperate the burden of a union.
darawk 8y ago
> Labor cost does not determine a product's sale price. That is a disastrous myth It's not a myth. It just depends on whether the pricing is demand driven or supply driven. Commodity products absolutely have their prices set by costs (labor among them).
redorb 8y ago
Labor / Employee costs is a lot of the times the most significant costs to a company. It's not the sole determination but it's definitely one of the top 3 factors Labor (forever and growing) > Infrastructure (large but incremental) and R&D (medium and ongoing)
- walshemj 8y ago
  Depends on industry film has a high labour cost because you pay actors a lot - I suspect the % of film labour costs due to Bectu/ ISATSU members is not that big.
- jressey 8y ago
  Right, and if the costs of running your business are greater than the revenue you can generate from market demand, then you are not running a viable business.
jshowa3 8y ago
It really doesn't matter what the market bears because software is so malleable that companies spend dozens of hours creating loot box systems, marketplace systems, data driven pricing models etc. to squeeze every last dollar out of the customer, regardless of whether the demand is high for these things or not. It doesn't matter if their product is half broken or is barely a product at all, as long as they can create 50,000 skins. Then again, I'm not sure what demand for these systems are, but considering how universally detested they are, I would assume not much.
TheGRS 8y ago
This is the current problem with the game market. There was a race to the bottom in game prices over the course of the last 8 years that's caused many titles to barely break even. Throw in an over-saturation of developers who are willing to price their products for less and you have an industry that is sustained through people chasing their dreams while eating ramen for dinner.

Wohlf 8y ago

You are correct, but I would caveat that labor cost is just one of many factors in determining the minimum price a product can be profitably sold at.

jakeinspace 8y ago

For any particular company or even country to some extent (since the games industry is quite globalized), this is true. However, if there were widespread unionization among many of the biggest studios then that could conceivably lead to a market-wide price hike, which would be largely absorbed by consumers due to a lack of suitable substitutes. Yes, the supply/demand equilibrium point would shift and demand would likely drop somewhat, but I think it's quite likely that the market demand for top-tier games isn't perfectly elastic.

Retric 8y ago
The optimal selling price for a game does to change becase developers add a fixed cost. Suppose you have 1 Billion in fixed costs and 1$ in per unit cost and are given two options. The equation is just (number sold) * (unit price - unit costs) and that 1 Billion dollar fixed cost is irrelevant when maximizing profit (or minimizing loss). What it would do is reduce the number of games created, as the industry becomes slightly less profitable. Which would then spread consumer spending over fewer titles and thus recuperate the burden of a union.

darawk 8y ago

> Labor cost does not determine a product's sale price. That is a disastrous myth It's not a myth. It just depends on whether the pricing is demand driven or supply driven. Commodity products absolutely have their prices set by costs (labor among them).

redorb 8y ago

Labor / Employee costs is a lot of the times the most significant costs to a company. It's not the sole determination but it's definitely one of the top 3 factors Labor (forever and growing) > Infrastructure (large but incremental) and R&D (medium and ongoing)

walshemj 8y ago
Depends on industry film has a high labour cost because you pay actors a lot - I suspect the % of film labour costs due to Bectu/ ISATSU members is not that big.
jressey 8y ago
Right, and if the costs of running your business are greater than the revenue you can generate from market demand, then you are not running a viable business.

jshowa3 8y ago

It really doesn't matter what the market bears because software is so malleable that companies spend dozens of hours creating loot box systems, marketplace systems, data driven pricing models etc. to squeeze every last dollar out of the customer, regardless of whether the demand is high for these things or not. It doesn't matter if their product is half broken or is barely a product at all, as long as they can create 50,000 skins. Then again, I'm not sure what demand for these systems are, but considering how universally detested they are, I would assume not much.

TheGRS 8y ago

This is the current problem with the game market. There was a race to the bottom in game prices over the course of the last 8 years that's caused many titles to barely break even. Throw in an over-saturation of developers who are willing to price their products for less and you have an industry that is sustained through people chasing their dreams while eating ramen for dinner.