🚀 go-pugleaf

In article <10402@hydra.gatech.EDU> ccocswr@prism.gatech.EDU (Winston Rast  (Micro- coop)) writes:
>You are also correct in stating your comments about development costs.  The
>expenses to develop a product must be passed on to the consumer although I
>would much rather they not be but I have little choice and I understand their
>high price.  Take PageMaker 4.0 for example.  It will list at $795.  I'm sure
>that one will be pirated to a great extent but Aldus can't help it really.
>It's just their development costs getting in the way.  By the way, PM 4.0 will
>go for $199 here at GA Tech.  GREAT PRICE!!  I'm getting one!
>Take care,
>Winston

This is probably the most prevalent economic fallacy today.  Aldus does not
have to price PM 4.0 at $795 because it cost a lot to develop; that is a 
sunk cost and has nothing to do with unit cost.  They price their products
at the point where they think they will get the most profit.  They may have
to set the satisfactory profit line at a high level because of earlier
development costs, but that is a different matter.  To price a product,
consider the unit costs (documentation, packaging, etc.), draw up a price
vs. sales curve (estimated, of course), subtract variable costs from the price,
and pick the best point on the curve.  Expensive development requires a lot
of profit to be worthwhile, and may contribute to raising the price (by
requiring more expensive documentation or by raising demand at high price
levels), and a company will be willing to spend a lot on development only if
they have some confidence of recouping these costs, but these influences are
indirect.

In the example above, if each package shipped cost Aldus $100, and ten times
as many people would buy it at $199 rather than $795, they would be fools to
charge the higher price.  By having as good a product as they can, they hope
that they can sell a lot at $795, so that maybe only four times as many people
would buy at $199.  And, since they figured they could sell a *lot* of PM
at $795, they figured they had lots of money to spend on making a good
product.

DHT

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>-- 
>|- Winston Rast  (Micro- coop)	     Georgia Institute of Technology      -|
>|  ccocswr@prism.gatech.edu          Atlanta, Georgia  30332               |
>|									   |
>|- "Guilt is SUCH a great weapon!"   -- Bull (Night Court)                -|