Topic: Pricing & Demand Curves
Started by: Willow
Started on: 6/12/2006
Board: Publishing
On 6/12/2006 at 10:13am, Willow wrote:
Pricing & Demand Curves
I was going back through old threads and wanted to respond to something I saw here:
http://www.indie-rpgs.com/forum/index.php?topic=17728.0
While it is a very good look into the basics of pricing, there is a small error in Vincent's description of the 45 degree demand curve. He states that as the price changes, the quantity sold changes by the exact same amount. This is correct; however he draws the conclusion that this means that income is constant.
While Price + Quantity is constant, Income actually is Price x Quantity which varies quite a bit.
(This is easy to see. Imagine a game being sold for $2, which sells 8 copies. The total income is $16. If the price is raised to $3, 7 copies will be sold, which will increase the income to $21. The maximum possible income comes when Price and Quantity are equal, which would be $25 in this case.)
Fortunately, the 45 degree demand curve only exists in theory, and the rest of Vincent's article is quite sound. However, a profit-minded publisher should keep in mind that you are trying to maximize income, which is price* times quantity, not price plus quantity.
(Actually net income, which is price minus cost. In the above example, selling your book for $5 doesn't help if it costs you $6 to print it. You, of course, want to charge $8 for it.)
Forge Reference Links:
Topic 17728
On 6/12/2006 at 2:29pm, lumpley wrote:
Re: Pricing & Demand Curves
Willow wrote:
He states that as the price changes, the quantity sold changes by the exact same amount. This is correct; however he draws the conclusion that this means that income is constant.
Hey, you've assumed units across the bottom and up the side that aren't there. That graph doesn't show a "1 book sold per 1 dollar change in price" curve, it shows a "changing your price doesn't change the amount of money your game makes for you" curve.
Plus, rectangles! Look at the green and blue rectangles! Rectangles are made of multiplication, not addition.
In my defense.
-Vincent
On 6/12/2006 at 10:50pm, Willow wrote:
RE: Re: Pricing & Demand Curves
You can make the units and the scale whatever you like, but there will be a maximal income solution.
To give another example, suppose you reduce your price all the way to zero. You'll be selling more books, but it'd be folly to think that you're making money.
(By the way, I have a degree in economics. I know what I'm talking about.)
On 6/13/2006 at 12:01am, lumpley wrote:
RE: Re: Pricing & Demand Curves
Oh for god sakes.
Yes. You're absolutely right, and beyond my expertise, about every single thing except your reading of my graph.
I'm not telling you that you're wrong or dumb. I'm telling you that you misread my graph, like any person, however right or smart, might occasionally do.
-Vincent
On 6/13/2006 at 5:29am, Willow wrote:
RE: Re: Pricing & Demand Curves
I was just trying to help. I'm sorry you took it the wrong way.
On 6/13/2006 at 10:59am, preludetotheend wrote:
RE: Re: Pricing & Demand Curves
Hmm, cause the words never actually got said Willow the point of the graph seems more to show how many books are going to be purchased/downloaded. Making money was not the concern it was just a simple little graph to represent that the lower the cost in the game the more likely it was to be purchased/downloaded.
Your intentions were good though so thanks ^_^, if the lack of figures still bugs you you could work your own little primer on pricing up lol.
Oh and Vincent I had read your article before but don't think I eevr got to tell you it was a great read thanks for the time you put into it.
Regards, Seth
On 6/13/2006 at 12:10pm, lumpley wrote:
RE: Re: Pricing & Demand Curves
Willow wrote:
I was just trying to help. I'm sorry you took it the wrong way.
Uh, well, okay. I'm not sure how to accept that kind of non-apology, but I'm happy to chalk the whole thing up to the established problem of reading tone over the internet.
So are we agreed now about the interpretation of my graph?
Like I say in the article itself, the purpose of that graph is just to establish a point of comparison between the elastic and inelastic curves that follow. I'm perfectly willing to accept that no real-world demand curve ever looks like that. The real point is that we're probably in a position right now where charging a little more for our games would be profitable.
-Vincent
On 6/13/2006 at 12:17pm, Ron Edwards wrote:
RE: Re: Pricing & Demand Curves
'Scuse me, Vincent, it's my go now.
I was just trying to help. I'm sorry you took it the wrong way.
These words have a name. It is, passive-aggressive bullshit.
"Just" trying to help = why are you making me look bad by showing I'm wrong
"sorry you took it the wrong way" = fuck you
Willow, the Forge is founded on real discourse, which means both accepting the responsibility when you've made a bad call, and not leveling invective at others (regardless of dress-up). That post was a flame by my standards, which are the standards that matter here.
I'm not interested in your excuses. You tried to demonstrate expertise, you were wrong (which is neither a sin nor necessarily stupid), and now you're striking back because your own ego makes you feel belittled. Whereas both Vincent and Seth were courteous and pointed out the error without blaming or belittling you as a person.
Learn from their examples.
This thread's done. No more posting here.
Best, Ron