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Paying lower unit price for higher volume customers is literally how the entire economy works. People deal with this every day. It's why jumbo packs in the supe

by cletus 5y ago

Paying lower unit price for higher volume customers is literally how the entire economy works. People deal with this every day. It's why jumbo packs in the supermarket are cheaper. It's how Costco exists. It's the one capitalist principle almost nobody has a huge problem with.

Closi 5y ago
> Paying lower unit price for higher volume customers is literally how the entire economy works. That's not how the economy works - it's a very simplified view which IMO is incorrect in this instance. Companies in theory only offer volume discounts when it makes commercial sense to do (i.e. 'second degree price discrimination'). Price discrimination opportunities happen when you believe that you will sell more to a customer by changing the price for a particular segment / volume target (companies in theory always try to sell at the maximum price that the buyer will accept, and price discrimination is just strategy to help sell at a higher price to certain segments if the market will accept it). Companies will also only do deals which are profitable (sometimes higher volume deals are profitable while lower volume deals aren't, for instance it might be practical to sell 1 million cans of beans to a large supermarket chain for 20 cents, while it's only practical to sell 10 cans of beans for 50 cents each to a smaller shop). In the AppStore in reality this would mean you would need to believe that the reduction in fees would encourage enough big developers to the platform to offset the change in fees (at the moment I'm assuming the profitability threshold is met - as Apple is clearly already making money on the bigger apps here). Now in order to pay for the 30% to 10% swap, you would need to bring c5 times the number of big developers to the platform to offset the reduced margin, which is very unlikely to happen, particularly as Apple have the dominant platform (i.e. most developers are already probably on iOS that are going to be on iOS). Now if the industry was heavily competitive, and mobile developers could leave and go to another platform with lower fees and reach the same audience, then the competitive pressure would exist to do what you are describing and volume discounts may become a thing - but because Apple can block any competition in this space they don't need to offer any discount to encourage these big developers to use their platform - the developers have to keep using them (which is what the lawsuit is about). i.e. Apple's market position allows them to act as a market-making monopsony, which means it's not in their interest to provide a discount as they can exploit the situation to generate super-normal profits. Economics & business strategy 101.
- cletus 5y ago
  I'm sorry to say this but your comment reads like some core concepts from Econ 101 were absorbed but the part about how economics theory is largely descriptive not prescriptive was missed. You're not far into your comment before having the "in theory" qualifier. There are lots of reasons why volume discounts exist: - To encourage more use; - It's aspirational in that users believe they can get big enough to get that lower per unit price; - Every customer has fixed and variable costs. Volume discounts account for fixed costs. Generally speaking, a large customer will be less overhead for the provider in cost per dollar of sales; - Bargaining power. Some customers are price takers. Others are price makers; - Anchoring. Supermarkets in malls will tend to pay lower rents (per square foot) because mall owners know their presence brings in customers that frequent other businesses. Likewise if a customer is accustomed to buy Fortnite skins through your ecosystems they're more likely to spend on other things; So basically I don't accept your premise so the rest is kind of irrelevant.
  - awillen 5y ago
    You're literally giving examples of how his premise applies in real life. "Companies in theory only offer volume discounts when it makes commercial sense to do" - Encouraging more use makes commercial sense because it yields more money overall even with the discount (if done correctly) - Users aspiring to buy more makes commercial sense because people buying more means more money - It makes commercial sense to give discounts because large customers cost less relative to small ones due to fixed costs not changing based on customer size ...and so forth. You're saying his premise is irrelevant but giving a series of examples of why his premise is relevant.
  - Closi 5y ago
    It is Econ 101, and of course all this is theory - but that's the idea right, we are describing why it is in Apple's interest to do what they are doing. You are prescribing a change that goes against basic economic theory and also isn't the behaviour being observed, so I personally don't think that criticism is fair! The main thing your comments miss is how apple is going to make up for the immediate shortfall in profit from your proposed changes. Bear in mind, they need to increase revenue 5 times to make the same amount of profit. It's fine to hand-wave about how Apple should provide volume discounts because everyone else does, but you don't really provide a reason for why they should do that from a financial perspective and how they can do it without loosing a majority of their profit (everything is a soft-benefit which doesn't account for the huge financial losses this would incur). I don't mean a bullet point, I mean like "I think a reduction of the fees to 10% would translate to a 20% reduction in the price of apps, and that would encourage people to buy 5 times more apps". Or that all the money these big companies make will be so inspirational that 5x new developers will enter the market and these will, on average, be just as successful as the previous developers with zero cannibalisation.
zrm 5y ago
Volume discounts come about because the true cost of a product has both fixed and variable components. If it costs a given amount to have a checkout clerk ring up your order, that amount doesn't change based on whether you buy a case of ramen or a single cup, so if you buy the case they can spread it over a larger volume. But in this context, the fixed and variable costs are already split out. iOS developers pay the $99 fixed charge that should cover any of Apple's fixed costs and pay 30%. If you're already paying the fixed costs explicitly then the unit price only needs to cover the variable costs and higher volume yields no change. And they're starting off from a PR hole because the rate so obviously has no relationship to their actual costs. It costs them the same to distribute a 100MB app whether the developer charges $1 or $100, but they charge $0.30 in one case and $30 in the other. A developer with a 10MB app sold for $10 pays ten times more than a developer with a 100MB app sold for $1 even though their distribution cost to Apple is ten times less. Ordinary competitive markets don't work like that because otherwise a competitor would come in charging prices more proportional to their costs and everyone being overcharged would switch to the alternative.

by cletus 5y ago

Closi 5y ago

> Paying lower unit price for higher volume customers is literally how the entire economy works. That's not how the economy works - it's a very simplified view which IMO is incorrect in this instance. Companies in theory only offer volume discounts when it makes commercial sense to do (i.e. 'second degree price discrimination'). Price discrimination opportunities happen when you believe that you will sell more to a customer by changing the price for a particular segment / volume target (companies in theory always try to sell at the maximum price that the buyer will accept, and price discrimination is just strategy to help sell at a higher price to certain segments if the market will accept it). Companies will also only do deals which are profitable (sometimes higher volume deals are profitable while lower volume deals aren't, for instance it might be practical to sell 1 million cans of beans to a large supermarket chain for 20 cents, while it's only practical to sell 10 cans of beans for 50 cents each to a smaller shop). In the AppStore in reality this would mean you would need to believe that the reduction in fees would encourage enough big developers to the platform to offset the change in fees (at the moment I'm assuming the profitability threshold is met - as Apple is clearly already making money on the bigger apps here). Now in order to pay for the 30% to 10% swap, you would need to bring c5 times the number of big developers to the platform to offset the reduced margin, which is very unlikely to happen, particularly as Apple have the dominant platform (i.e. most developers are already probably on iOS that are going to be on iOS). Now if the industry was heavily competitive, and mobile developers could leave and go to another platform with lower fees and reach the same audience, then the competitive pressure would exist to do what you are describing and volume discounts may become a thing - but because Apple can block any competition in this space they don't need to offer any discount to encourage these big developers to use their platform - the developers have to keep using them (which is what the lawsuit is about). i.e. Apple's market position allows them to act as a market-making monopsony, which means it's not in their interest to provide a discount as they can exploit the situation to generate super-normal profits. Economics & business strategy 101.

cletus 5y ago
I'm sorry to say this but your comment reads like some core concepts from Econ 101 were absorbed but the part about how economics theory is largely descriptive not prescriptive was missed. You're not far into your comment before having the "in theory" qualifier. There are lots of reasons why volume discounts exist: - To encourage more use; - It's aspirational in that users believe they can get big enough to get that lower per unit price; - Every customer has fixed and variable costs. Volume discounts account for fixed costs. Generally speaking, a large customer will be less overhead for the provider in cost per dollar of sales; - Bargaining power. Some customers are price takers. Others are price makers; - Anchoring. Supermarkets in malls will tend to pay lower rents (per square foot) because mall owners know their presence brings in customers that frequent other businesses. Likewise if a customer is accustomed to buy Fortnite skins through your ecosystems they're more likely to spend on other things; So basically I don't accept your premise so the rest is kind of irrelevant.
- awillen 5y ago
  You're literally giving examples of how his premise applies in real life. "Companies in theory only offer volume discounts when it makes commercial sense to do" - Encouraging more use makes commercial sense because it yields more money overall even with the discount (if done correctly) - Users aspiring to buy more makes commercial sense because people buying more means more money - It makes commercial sense to give discounts because large customers cost less relative to small ones due to fixed costs not changing based on customer size ...and so forth. You're saying his premise is irrelevant but giving a series of examples of why his premise is relevant.
- Closi 5y ago
  It is Econ 101, and of course all this is theory - but that's the idea right, we are describing why it is in Apple's interest to do what they are doing. You are prescribing a change that goes against basic economic theory and also isn't the behaviour being observed, so I personally don't think that criticism is fair! The main thing your comments miss is how apple is going to make up for the immediate shortfall in profit from your proposed changes. Bear in mind, they need to increase revenue 5 times to make the same amount of profit. It's fine to hand-wave about how Apple should provide volume discounts because everyone else does, but you don't really provide a reason for why they should do that from a financial perspective and how they can do it without loosing a majority of their profit (everything is a soft-benefit which doesn't account for the huge financial losses this would incur). I don't mean a bullet point, I mean like "I think a reduction of the fees to 10% would translate to a 20% reduction in the price of apps, and that would encourage people to buy 5 times more apps". Or that all the money these big companies make will be so inspirational that 5x new developers will enter the market and these will, on average, be just as successful as the previous developers with zero cannibalisation.

zrm 5y ago

Volume discounts come about because the true cost of a product has both fixed and variable components. If it costs a given amount to have a checkout clerk ring up your order, that amount doesn't change based on whether you buy a case of ramen or a single cup, so if you buy the case they can spread it over a larger volume. But in this context, the fixed and variable costs are already split out. iOS developers pay the $99 fixed charge that should cover any of Apple's fixed costs and pay 30%. If you're already paying the fixed costs explicitly then the unit price only needs to cover the variable costs and higher volume yields no change. And they're starting off from a PR hole because the rate so obviously has no relationship to their actual costs. It costs them the same to distribute a 100MB app whether the developer charges $1 or $100, but they charge $0.30 in one case and $30 in the other. A developer with a 10MB app sold for $10 pays ten times more than a developer with a 100MB app sold for $1 even though their distribution cost to Apple is ten times less. Ordinary competitive markets don't work like that because otherwise a competitor would come in charging prices more proportional to their costs and everyone being overcharged would switch to the alternative.