Justin, I do not get it, you are correct. I admit I do not get it.
I would be satisfied by any answer that accounted for the totality of facts. But now there are even facts that are in question (do mfrs dictate price or not?). “Relationship building” is a non-answer. All businesses build relationships. So fucking what? If you think I should be satisfied with this answer, I fundamentally don’t get it and I never will get it. It’s not a magic wand that explains away all market behavior. It’s just a non-answer.
Pochacco’s answers feel like they are getting somewhere, but I’m not so sure now that price-fixing is in question. I thought we were all in agreement that manufacturers are fixing the prices but now it seems like they just offer an MSRP and aren’t fixing the prices at all.
So, sure, I don’t get it, but excuse me, it’s not because I’m being dense or willfully contrary.
For example, why doesn’t a console manufacturer offer a charity auction of their first batch in order to better determine a launch price? Here’s an example of an explanation I would accept: because being to market as fast as possible is much more important than finding the right launch price. It is more important to launch quickly because x, y, z, which doesn’t really apply in cases like w, so there’s no reason why they should be related. Bam, complete answer. I’m not asking for an essay or a mathematical formula. But I am asking why this case is special compared to other cases. So far, I have received almost no feedback on that point.
I DO SEE IT. Jesus Christ. What I don’t see is why this case is different from cars, for instance, where the salesperson has flexibility to negotiate. A car is also a non-commoditized, highly-durable good. Or why it is different from power supplies or microchips where retailers/resellers have considerable latitude in the final price. Therefore, this is yet another non-answer.
Can you at least see that if you say, “Dude, erl, X causes Y, it’s so obvious” and I say, “Yabbut X also causes ~Y, and that’s a retarded use of the verb ‘to cause’” that I may actually have a point, and I’m not being contrary for its own sake?
Because this charity would only show how much money a group of dedicated console fanboys has available to them. It would do jack shit in determining what is a good launch price because a good launch price should be 1) close to the break even point so the manufacturer doesn’t lose too much money on the console and 2) cheap enough that the mass market is willing to take a flyer on an untested platform that might fizzle out or might produce the next great game.
I ask again, do you realize that eBay sales of a new console in the immediate post-launch period are only a fraction of the total sales? Because that is a key part of this that you really don’t even seem to remember, let alone get.
Guys, the charity thing was meant to be an example of a complete answer in response to the assertion that I was somehow being unreasonable in my demands. I don’t even care.
Right, but your question has ALREADY been answered…you just don’t seem to accept the answer. ‘Why do gas prices fluctuate, but not Wii Prices?’…because you are comparing apples to oranges. The price of gas fluctuates because there are multiple and complex factors involved in determining the price…AND there is no sole source. The price of WII’s doesn’t fluctuate because there IS a single vendor for the end product and they are attempting to position their box to compete with manufactures of OTHER systems…and part of that positioning is the price of their system. They are willing to take a loss in the short term to get your business because they license and market the games that play on their proprietary box. This is totally unlike how the price of gas at the pump is determined.
So…you are trying to compare two products that have no comparisons. It’s really as simple as that.
So then, again, I am completely lost at what exactly you’re driving at.
As I explained earlier, game companies do not want to alienate their potential audience by constantly shifting the price of a console in the weeks after the launch. They don’t start the price off at some astronomical number because there is a history of game console prices, anything over $300 is considered expensive and anything over $400 is considered too expensive. A market backlash will quickly form excluding all but the most hardcore fans (for an example, see the PS3 launch).
If the price is quickly changed after launch, the potential audience (and many members of the hardcore that bought at the “too expensive” level), will shout “Rip-off!” and the short term success of the console may be hampered (for an example, see the iPhone launch).
Of course, this is compounded for game consoles because no one really makes any money on the hardware itself. Trying to do so would raise the launch price, crippling the adoption rate, which in turn would cripple the development environment as no developer wants to make games for a system that doesn’t have a large (or at least growing) install base (again, see the PS3 launch).
Therefore, the price is set at a point where it can be lowered in intervals as the adoption rate grows and component prices go down. As for people buy a system, the more royalties Nintendo or Microsoft or Sony will earn from game sales offsetting a price drop. These price drops become permanent because raising the price of “old tech” (the hardware config of any console is basically set in stone on launch day) is just not done in any technology-based industry.
I could keep going if you like, but you have to be specific on what you’re looking for, because you’ve received several good answers and you’ve rejected all of them.
If one more person that quotes the friggin’ subject as an example of my questions I’m going to scream.
Actually, apple and orange prices fluctuate as expected.
Right. So, what about other products that can be described exactly the same way, but whose prices fluctuate?
Let’s look at Microchip versus ZiLOG microcontrollers. Microchip’s C compiler is like $500; ZiLOG’s is free. Presumably both want to maximize their profit on their chips, seeing as that’s the core of their business. If I take your whole answer into account, this should predict that when ZiLOG releases a new chip with its own C compiler, the compiler should be priced competitively (around $500), maybe even taking a loss (even though software dev is primarily a sunk cost)… hell, in fact I can’t even make sense of it. It’s strained from word one. But I’ll give you this, $0 is a stable price from ZiLOG. But if they have an MSRP on their chips, Mouser, Digikey, etc sure as hell don’t listen. In fact, it really bothers me why Microchip charges so much for their compiler but ZiLOG doesn’t, I think it has to do with the Harvard Architecture of the PICmicro but that’s a separate thread.
Now don’t pretend that I don’t like your answer just because I’m critiquing it. If you think you’re right, then I guess, gosh, this is something like a debate! Something very much like a debate, right here in GD (imagine!), where you demonstrate that your answer was only partially complete, and in fact my objections seem sound but really…
But, then, I’m sure you don’t need debate coaching from me.
Apples and oranges are closer to a commodity like oil than are Wii boxes…so, maybe you’d be better off using them as an example. Both apples/oranges and oil are traded commodities who’s price varies (for one reason) based on it’s position in the market. Wii’s are not sold on the commodities market, so it’s price varies only according to the sole source manufacturer…who wants to keep the price stable and low in order to build customer loyalty and to also entice customers in so they can sell them peripherals and games.
You’ve been told why Wii prices don’t fluctuate already (and by better posters than I)…and presumably you understand why oil (and refined fuel…and apples and oranges) DO fluctuate in price.
I’m not being snarky here but what don’t you understand here?
Name a product that has a similar market and who’s price fluctuates like oil or any other commodity and I’ll see if I can address your question. I can’t think of any off the top of my head.
I’m unsure what this is supposed to demonstrate wrt the discussion. My guess is the difference in price here has more to do with market strategy…sort of like two competing software manufacturers, one who sells their product for a fixed price and the other who ‘gives it away for free’ on the front end but who relies on advertising and other costs (say, enhanced code or special features) to make their bottom line. Sort of like the difference between the online games WoW and Guild Wars.
If you are thinking that Wii’s should fluctuate because of the component costs you should know that the manufacturer buys in huge quantities at fixed prices for their production runs…so, there really is no fluctuation there. They KNOW what their fixed costs will be ahead of time and they do their pricing based on both those fixed costs and on their marketing strategy wrt other manufacturers. Sort of like iPods or other consumer electronics…who’s prices ALSO don’t fluctuate much over time. Unlike commodities like…oil and apples and oranges.
Actually, you’ve finally given a fairly complete theory. Thank you. But you’ll have to forgive me, I have a few questions about it.
Presumably everyone knows this, including resellers. Forget the price-dictator question, assume it’s just an MSRP. Why even have an MSRP? Why not just say, “Hey Wal-Mart, you want 50,000 consoles over the first three weeks, here’s the cost.” If we should assume that if it is so very beneficial to have a stable price, then it will actually have a stable price, whether manufacturers say so or not. And yet they do say so. Thus, I would like you to consider the slightest possiblity that you’ve not quite answered the question. It sounds right, it seems like you’ve answered it, but you’ve just explained the larger phenomena of why prices might not move on items that aren’t commodities. But, two facts are a problem: prices do move on some non-commodities, even over a short period of time, and manufacturers don’t all set MSRPs, even though the situations are ostensibly equal.
So, part of a complete theory must take into account that this is a consumer product, not B2B, or…? It’s not clear why Apple fucked this up if it’s supposed to be so obvious to little ol’ me. But I appreciate the vote of confidence! I’ll keep on tryin’ to understand…
Yeah, it’s an interesting area, alright. Makes one wonder why Microsoft doesn’t just give away their full programming suite, doesn’t it? I mean, I can see why console makers don’t give away the consoles, they have real hardware costs, but we know by inspection what the market price of “shit burned to a CD/DVD” is, it’s $9-$25 per disc, yet MS charges much more than that for the suite, even though their manufacturing costs can’t be any more than a video game, complete TV season, or movie. Or why, if they sell compilers, they don’t just give away the OS. To sell both the OS and the compilers… well I guess there’s a deeper story than just focusing on the adoption rate, eh? Perhaps MS should demand royalties from anyone who sells a program on their OS! Then we’d see what the adoption rate theory has going for it.
Totally.
I have not rejected them. I’ve suggested that they don’t explain what their creators suggest they do. This difference should not go unnoticed.
Thanks for your continued posts. Seriously.
Every time I reject a suggestion I have given at least one example.
I deal with them all the time at work, like microchips. I’ve brought up this example more than a few times. But maybe that’s not what you mean. I can’t tell. I asked in my last response to you whether this phenomena was only attached to consumer goods and not B2B goods, but apparently your frustration has reached a critical mass and you were unwilling to clarify your answer. I’m really sorry, I’m not trying to be difficult. Are B2B goods some kind of special case, or are consumer goods the special case, or…?
Whoa whoa whoa. I’m still not talking about what happens in the long term. I’m talking about sudden demand spikes. Sudden demand spikes happen, for gas, when there is a supply freeze for some local area. It happens now and again in regional markets. Sudden demand spikes also occur at the introduction of a new product.
Yes, the bid process and scarcity of product sometimes found in B2B goods is completely removed from the process of MSRP and steady supply found in the consumer world.
That is not a sudden demand spike, that is an assumed demand spike as early adopters scramble to buy it. But again, the length of the spike is unknown and manufacturers want price continuity between the early adopters and those that buy after the initial spike dies down. If there’s no continuity people that bought feel cheated and people that are waiting to buy will wait (possibly forever) for the price to drop.
Let me back up and try this a different way. What we learn about in economics class is an idealized version of reality, perfect competition. Perfect competition requires:
Many buyers/Many Sellers
Homogeneous Products
Low-Entry/Exit Barriers
Perfect Information
Maximize Profits
If you have all this, then the market follows a fairly consistent path. Once you deviate from this, the market deviates. Different products will deviate in different ways, and result in markets that act differently. The character of those deviations are as diverse as you can imagine, some markets are even distorted by the actions of a few individuals, and it could take decades to eliminate their influence.
The problem your having is in thinking that product markets should all act the same, when it’s like saying that all people should act the same. There’s no reason to think that the automobile market should bear any resemblance to the game console or washing machine market, even though they’re all durable goods. The closer things are to each other, the more similar they will act, perhaps chicken and beef, flour and sugar, gas and diesel, will have significant similarities. Once you get a little less similar, the markets can look completely different, and have valid reasons for being different.
Manufacturer to retailer: B2B
Manufacturer to distributor: B2B (ostensibly, the microchip case)
Retailer to end user: consumer
It’s not clear yet what separates the first case from the second case. In fact, it’s very peculiar, because of your challenge for me to find manufacturer to retailer items that don’t have an MSRP. So definitely it is not a B2B issue as such, there’s something else here. But we can move on in spite of it.
So basically, we have this: MSRP is present in cases where the manufacturer does not want resellers to compete on price. Thus, if I found some other good that has an MSRP, we should be able to divine a reason why that manufacturer doesn’t want resellers to compete on price with that good. Do we agree? I mean, is this a fairly complete account of MSRP? All else equal, if there’s an MSRP, then the manufacturer doesn’t want subsequent price competition? I’m not laying a trap for you, just asking, are we missing something, or is this a good general account? (I’m sure there are always exceptions. I’m not that nitpicky.)
I have more, but I would like to pause here to avoid the weird chain-of-problems that happens with posts that say a great deal.
