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Price of goods, especially digital goods, aren't based the cost of those goods. You don't expect to pay less for a low-budget indie film than a 300 million dol

Price of goods, especially digital goods, aren't based the cost of those goods. You don't expect to pay less for a low-budget indie film than a 300 million dollar blockbuster. The price of something is instead based exclusively on willingness to pay for it. The market has proven that people are willing to pay more for digital goods that they own and can consume over and over over digital goods that they have a short-term access to.

shmerl 13y ago
Prices are based on cost at least in part. But with logic similar to yours, ISPs for example explain why they charge crazy prices for normal quality plans, and charge "normal" prices for junk ones. "Willingness to pay" when there aren't better alternatives is quite a slippery basis for any conclusions. Anyway, ask anyone if they prefer to buy and not to overpay, rather than rent. Just because someone devised an idea of renting digital goods for no reason except their own greed is not a reason to say that it's a good idea. It gives no benefits for the user and can be used as an excuse to drive prices up on purchases as you said yourself.
- MartinCron 13y ago
  Prices are based on cost at least in part. That's a fundamental misunderstanding of basic economics. The market always sets the price. If the price that is set by the market is lower than the cost to produce that item, then you just don't have a viable product to sell. The basic real-world reason that renting of digital media exists is because some people are willing to pay more for the added value of being able to watch it over and over while some people aren't.
  - hackinthebochs 13y ago
    >The market always sets the price. This is rather devoid of meaning. What is the market if not a label we use to reference the extremely complex interactions of individuals with varying degrees of information and rationality in an adversarial system? Of course the actual price to produce a product influences what people are willing to pay for it! This is why companies fight so hard to keep that information secret. This is why I refuse to buy a typical cell phone plan that charges absurd amounts for data and text and stick to prepaid. I influence the market because of my knowledge of how much it actually costs to send a text. The market absolutely reacts to the actual costs of products.
    - pointlessdebate 13y ago
      Absolutely. Thats why everyone complains about how an iPhone is priced at nearly 200% of its cost.
      - MartinCron 13y ago
        People complain, but they still buy them.
        shmerl 13y ago
        Which is not a reason to consider these practices valid (overcharging and DRM).
        pointlessdebate 13y ago
        Not a defence of DRM or overcharging, and more of a statement on how pricing works in real-life. Very few people have the time and knowledge to do a supply chain or BOM analysis before they buy anything. Hence, there is little incentive for companies to price products based on cost. Cost is a factor only when analyzing profits. Hence, cost is usually whatever the market is willing to pay. Saying it is unethical or wrong does not change reality.
        shmerl 13y ago
        That's why stronger competition usually makes it more fair, since competitors can lower prices while still being profitable. Overcharging is usually not an indication of "willingness to pay", but an indication that the market in unhealthy (no competition, monopoly and so on).
        pointlessdebate 13y ago
        Agree with you. In general, overcharging does mean the market is not fair. However, even in the presence of competition, cost is not the major factor in pricing :). Competition may drive prices down but does not eliminate greed. eg: In India (where I live), mobile services cost a fraction of what it typically costs in US/Canada. Even here, texts are priced at 5x what it costs the operator :(.
chimeracoder 13y ago
> Price of goods, especially digital goods, aren't based the cost of those goods. The price of something is instead based exclusively on willingness to pay for it. There is a lot of misconception surrounding this principle. To oversimplify, in the short term, price is determined by the interactions of supply and willingness to pay. However, in the long term (in a competitive market), new suppliers will enter the market if existing suppliers are making supernormal profits, and existing suppliers will exit if they are making subnormal profits. This means that, in the long run, price will converge to the average total cost of production, in a competitive market. Of course, Netflix is not operating in a perfectly competitive market, but that distorts the price in a different way. It's not quite technically correct to say that price is based exclusively on willingness to pay for it; even in noncompetitive markets (true monopolies, as opposed to monopolistic competition), one can just as easily say that price is determined by the quantity that the monopolist wishes to sell.
- judk 13y ago
  How is "average cost" computed without knowing how many units will be purchased?

shmerl 13y ago

Prices are based on cost at least in part. But with logic similar to yours, ISPs for example explain why they charge crazy prices for normal quality plans, and charge "normal" prices for junk ones. "Willingness to pay" when there aren't better alternatives is quite a slippery basis for any conclusions. Anyway, ask anyone if they prefer to buy and not to overpay, rather than rent. Just because someone devised an idea of renting digital goods for no reason except their own greed is not a reason to say that it's a good idea. It gives no benefits for the user and can be used as an excuse to drive prices up on purchases as you said yourself.

MartinCron 13y ago
Prices are based on cost at least in part. That's a fundamental misunderstanding of basic economics. The market always sets the price. If the price that is set by the market is lower than the cost to produce that item, then you just don't have a viable product to sell. The basic real-world reason that renting of digital media exists is because some people are willing to pay more for the added value of being able to watch it over and over while some people aren't.
- hackinthebochs 13y ago
  >The market always sets the price. This is rather devoid of meaning. What is the market if not a label we use to reference the extremely complex interactions of individuals with varying degrees of information and rationality in an adversarial system? Of course the actual price to produce a product influences what people are willing to pay for it! This is why companies fight so hard to keep that information secret. This is why I refuse to buy a typical cell phone plan that charges absurd amounts for data and text and stick to prepaid. I influence the market because of my knowledge of how much it actually costs to send a text. The market absolutely reacts to the actual costs of products.
  - pointlessdebate 13y ago
    Absolutely. Thats why everyone complains about how an iPhone is priced at nearly 200% of its cost.
    - MartinCron 13y ago
      People complain, but they still buy them.
      - shmerl 13y ago
        Which is not a reason to consider these practices valid (overcharging and DRM).
        pointlessdebate 13y ago
        Not a defence of DRM or overcharging, and more of a statement on how pricing works in real-life. Very few people have the time and knowledge to do a supply chain or BOM analysis before they buy anything. Hence, there is little incentive for companies to price products based on cost. Cost is a factor only when analyzing profits. Hence, cost is usually whatever the market is willing to pay. Saying it is unethical or wrong does not change reality.
        shmerl 13y ago
        That's why stronger competition usually makes it more fair, since competitors can lower prices while still being profitable. Overcharging is usually not an indication of "willingness to pay", but an indication that the market in unhealthy (no competition, monopoly and so on).
        pointlessdebate 13y ago
        Agree with you. In general, overcharging does mean the market is not fair. However, even in the presence of competition, cost is not the major factor in pricing :). Competition may drive prices down but does not eliminate greed. eg: In India (where I live), mobile services cost a fraction of what it typically costs in US/Canada. Even here, texts are priced at 5x what it costs the operator :(.

chimeracoder 13y ago

> Price of goods, especially digital goods, aren't based the cost of those goods. The price of something is instead based exclusively on willingness to pay for it. There is a lot of misconception surrounding this principle. To oversimplify, in the short term, price is determined by the interactions of supply and willingness to pay. However, in the long term (in a competitive market), new suppliers will enter the market if existing suppliers are making supernormal profits, and existing suppliers will exit if they are making subnormal profits. This means that, in the long run, price will converge to the average total cost of production, in a competitive market. Of course, Netflix is not operating in a perfectly competitive market, but that distorts the price in a different way. It's not quite technically correct to say that price is based exclusively on willingness to pay for it; even in noncompetitive markets (true monopolies, as opposed to monopolistic competition), one can just as easily say that price is determined by the quantity that the monopolist wishes to sell.

judk 13y ago
How is "average cost" computed without knowing how many units will be purchased?