Everyone loves getting a bargain, which comes from paying less than you were willing to pay. This article looks at the topics of consumer surplus and maximum willingness to pay in the online music business, particularly iTunes. Apple's initial pricing strategy on iTunes was perplexing to some, because it charged a flat 99 cents per song for every song and every consumer. The argument is that Apple could have profited more and generated more surplus for consumers by adopting a more tailored pricing strategy.
A study at the University of Pennsylvania Wharton School of Business indicates that the market would sustain a higher uniform price than 99 cents. One alternative to this pricing scheme is to adopt song-specific pricing, similar to what iTunes did with its multi-tier system in April. The problem with this is that it would increase profits by only 3%, as consumers that are willing to pay more for one song are also likely to be willing to pay more for other songs, as well. Another option is an entry fee and then smaller per-song costs. The study indicated that an entry fee of $21.19 and a fee of 37 cents per song would raise both producer and consumer surplus.
One of the biggest issues with complicated pricing schemes is the cost to develop and implement them. However, it may be something that will become more common with technological improvements and firms looking for new ways to stay afloat.
No comments:
Post a Comment