The "games cost what the market will bear" fallacy
A follow-up thought to my recent posts about video game prices:
When the discussion about prices comes up, regarding games or any other entertainment, the common response is "well, they just cost what the market will bear." Besides being a simplistic, discussion-ending statement, this is simply wrong.
The explosion of Napster (and its file-sharing descendents) and the used video game business shows that in fact entertainment companies have been charging far more than the market will bear. Hundreds of millions of people wouldn't have broken the law to download music if CDs cost "what the market will bear." GameStop wouldn't have had a billion dollars in sales if video games were priced to reflect the market's view of what they should cost.
If the goal of a retail business is to find the most profitable combination of price and sales volume, the hemorrhaging of customers (or potential customers) to file-sharing and used games/rentals shows that the music and video game industries have pretty much failed. That the price may be high because of high production costs (probably, in the case of some or most video games; probably not, in the case of music) does not excuse this failure. It just means entertainment companies have a major problem they need to fix.
When the discussion about prices comes up, regarding games or any other entertainment, the common response is "well, they just cost what the market will bear." Besides being a simplistic, discussion-ending statement, this is simply wrong.
The explosion of Napster (and its file-sharing descendents) and the used video game business shows that in fact entertainment companies have been charging far more than the market will bear. Hundreds of millions of people wouldn't have broken the law to download music if CDs cost "what the market will bear." GameStop wouldn't have had a billion dollars in sales if video games were priced to reflect the market's view of what they should cost.
If the goal of a retail business is to find the most profitable combination of price and sales volume, the hemorrhaging of customers (or potential customers) to file-sharing and used games/rentals shows that the music and video game industries have pretty much failed. That the price may be high because of high production costs (probably, in the case of some or most video games; probably not, in the case of music) does not excuse this failure. It just means entertainment companies have a major problem they need to fix.
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