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If you sell a product with huge fixed cost and tiny marginal cost you need to have price discrimination. If you sell for the same price in China, Latin America
by saint_fiasco 7y ago
If you sell a product with huge fixed cost and tiny marginal cost you need to have price discrimination.
If you sell for the same price in China, Latin America, Africa and Europe imagine how much money you are leaving on the table.
Even if you believe optimizing your revenue to that extent is unvirtuous, you should still support price discrimination because it lets millions of people in poor countries enjoy your product. There is no way they could afford US/Europe prices.
- mikeash 7y agoYou don't need price discrimination. You can make money without it. You want price discrimination to make even more money. Edit: a lot of people seem to be confused about what I'm saying and are telling me how price discrimination is good. I'm not saying it's good or bad. I'm saying it's not a need. Existence proof: many companies that don't do it.
- JeremyBanks 7y agoYou need the money if you want to make the product.
- cylon13 7y agoYou say this like game developers are rolling in cash. In reality most indie game developers are making just enough to keep making games. Any optimization in the ability to make money can make the difference between the marginal game developer dropping out of the market or not. If you want a rich variety of indie games then you should be okay with allowing whatever non-coercive pricing strategies developers are using that works, and if you don't want indie games then don't buy any.
- lmm 7y agoMost game developers are barely viable businesses as it is (frankly a lot of them ought to find a different industry if their aim is to make money). Without price discrimination we'd see more developer bankruptcies and ultimately fewer games being made. (Up to you whether you think that would be a good or bad thing).
- saint_fiasco 7y agoYou also want price discrimination to let poor people use your product. Some people care about that sort of thing even if it costs them money. For example a bakery might choose to give away their leftover bread at the end of each day, so poor people can eat. This costs them money because some people might choose to get bread for free when they could have bought it at full price.
- mikeash 7y agoNothing says you can't charge the poor people price for everyone. You want price discrimination to get wealthier people to pay more. To take your bakery example, they'd ideally like to charge more for their bread when the customer is rich, but that's not practical, so they're stuck charging the same price regardless. Many businesses work around this, imperfectly, by using coupons or sales.
- saint_fiasco 7y agoBut importantly, the bakery can't charge the poor people price for everyone or they'd bankrupt. I think many indy artists are like that, that's why they say they'd rather you pirate their games. They could have used more strict DRM instead, if they only cared about money.
- cgriswald 7y ago> They could have used more strict DRM instead, if they only cared about money. Maybe, maybe not. DRM costs money and imperfect DRM can cost future customers, so in the case of an indy developer, it might be a net loss.
- nybble41 7y ago> But importantly, the bakery can't charge the poor people price for everyone or they'd bankrupt. In this situation the bakery is basically running a charity funded by the extra money they're getting through price discrimination. That's separate from their role as a business. The minimum sustainable price in the absence of price discrimination would not be the "poor people price" or the price paid by the rich, but rather the cost of material, labor, and capital which lies somewhere in between. Price discrimination and the absence of arbitrage allow the bakery to charge rich customers more, but it's entirely their choice to use that extra income to provide goods at a loss to those of lesser means. They could instead just keep the extra revenue for themselves.
- close04 7y agoNot necessarily. Sometimes you use profits from the high priced copy in a country with high purchasing power to cover up the losses from the lower priced copy in the country with lower purchasing power. In the case of games it makes sense especially if you rely on a large community of players for its success. You need more people to play it but you can't sell it at a loss everywhere in the world just to access all markets and gain the numbers.
- mikeash 7y agoHow can you possibly sell software at a loss?
- saint_fiasco 7y agoTech support and bandwidth, maybe? I'm pretty sure I costed Microsoft money when I was younger and poorer, because I knew how to download most security updates for my pirated Windows without getting caught, so I costed then bandwidth and payed nothing. Maybe they let that happen or did not work as hard as they could have to prevent it because they figured they'd recover their investment when I grew up and became a paying customer.
- mikeash 7y agoTech support is optional. Bandwidth is a possibility, but you'd have to work really hard to lose money that way, given how cheap it is. Sell your game for 10 cents a copy and you'll still make money.
- close04 7y agoI may be missing something but what pays the developer salaries and rent? Or maintaining the infrastructure for your sprawling online game?
- mikeash 7y agoDeveloper salaries and rent are the same no matter how many copies you sell. Each ten-cent copy sold brings you closer to covering those costs. If you don’t make enough to cover costs, you’re not selling at a loss, you’re just not selling enough. The marginal cost on infrastructure is like the marginal cost on bandwidth: really small.
- Notre1 7y agoI'm curious, what are some good examples of companies/industries that are successful in not price discriminating across national/world-region borders? Most of markets segments I can think of (pharmaceutical, automotive, SAAS) do it in one way (direct price discrimination) or another (separate products for a region).
- mikeash 7y agoApple comes to mind. Their products are usually even more expensive in poorer countries. Just about any commodity would qualify. Oil companies aren’t giving discounts to poorer countries or selling them a cheaper inferior product. Lots of indie software makers can’t be bothered to put in the effort to target individual countries, and just sell at one price worldwide. I believe both Apple’s and Google’s app stores work this way, with no ability to set a different price in different countries.
- beefalo 7y agoYou can't compare physical goods to software in relation to price parity. The cost to sell an iPhone in South America is higher for Apple then it is to sell one in the US so it makes sense that they cost more. For a game it costs the same, and costs virtually nothing for each sale. Google play supports setting different prices by country.
- mikeash 7y agoYou’re saying, they don’t price discriminate because they can’t. I’m saying, the fact that they don’t proves that it’s not necessary. These two statements are perfectly compatible with each other. Again: I’m not arguing for or against price discrimination. I’m just saying it’s not a need.
- bdowling 7y agoIt's all about risk versus reward. Making an indie game for the saturated indie market is a risky endeavor. The potential for high reward has to be there for developers to spend the time and money to make a game with a low probability of success. So some games absolutely need the ability to maximize profitability, including price discrimination (market segmentation).
- Legogris 7y agoSure. But there's a line somewhere between differentiated pricing and things like prohibiting users to give/sell keys cross regions or lobbying for shutting down exchange platforms where this happens. To draw on the bakery allegory in another comment, I think we can agree it would b nonsensical for the bakery giving away free leftover bread to homeless people to put controls in place that prohibits them from sharing their bread with others.
- shados 7y agoIf its leftover then its lower quality. That's fine. But in this case its the exact same product. If I'm a bakery owner and I give fresh out of the oven bread for cheaper/free to homeless folks, and I watch them turn around and sell it to my own customers, well, that freagin sucks.
- Legogris 7y agoRegardless of how sucky you would feel about it, do you think that would warrant limiting the rights of the people you gave the bread?
- shados 7y agoRegardless of how I feel about it, the options are: - Keep giving bread and lose an indeterminate amount of business from my target audience - Limit the rights of the people who I gave the bread to - Stop giving bread at all. If #2 is not possible, then it's either "I take a business hit for trying to provide a service to the less fortunate" or "Fuck the less fortunate". So now with that said, how I feel about it? Yeah, I think being able to limit the rights of the people I give the bread to is the best of all options. A real world example of this is low income housing, where the recipient isn't allowed to sublet their place, because that would be all sorts of fucked up. Obviously a game key is not anywhere near as big of a deal, but it is a similar principle if we want businesses to be able to open up to as many markets as possible (not just for their own sakes)
- 7y ago
- solatic 7y agoExplain this to me: how is it ethical to price discriminate against Western consumers when it comes to video games, but unethical when it comes to prescription drug costs? It's a bogus argument - any American struggling to afford the high cost of medication in America will tell you that geography is a very poor predictor of affordability. And anybody who has a sizable Steam library can tell you how the summer and winter sales get very expensive, very quickly. Healthcare should be relatively cheap. Entertainment should be relatively expensive. Prices should be globally stable.
- lazerwalker 7y agoI think there's a giant qualitative difference in the ethics of price discrimination around medical necessities vs luxury goods.
- whatshisface 7y ago>Healthcare should be relatively cheap. Entertainment should be relatively expensive. That's not going to work, people are more willing to spend for a higher standard of healthcare than they are a higher standard of entertainment. In fact the dollar value of one additional year of life is virtually unlimited, if not to the state, to the person whose life it is.
- munchbunny 7y agoEconomics 101 would tell you that price elasticity is the obvious difference between the two, and that makes a huge difference. If a game is too expensive, you move to another game or other cheap entertainment. If a drug is expensive, you pray that there's a cheap generic, which in some cases there isn't. The idea that prices should be globally stable works in the imaginary world where currency conversions hold real income constant, but that's just not true.
- dkersten 7y agoVideo games are purely luxury items though. You need access to medication, you don't need access to the latest and greatest games. Luxury items are already sold using value-based pricing rather than cost-based pricing. If I make $100 and have to pay $10 for a game, that's the same relative value as if I made $1000 and paid $100. Of course, that doesn't mean you don't feel ripped off if you're paying the higher price. I certainly do when I get charged €60 for a game that in the US costs $60 (which should be €53.54 at current exchange rate).
- nitwit005 7y agoMany companies just use time. Plane tickets are cheaper if you buy them earlier, and these days video games eventually go on sale. Pricing the different regions differently also "leaves money on the table", as there are wealthy people everywhere. Ideally you'd extract the maximum people are willing to pay, regardless of location.