Pricing

  • 22nd Oct 2005
  • 2 min read

One of the blogs I often read is Brad deLong’s Semi Daily journal. You can always find good discussions on various economic trends and news from Brad’s prespective on this site. In one of the stories he linked, it had the following line from original author

The Holy Grail in economics is that price should equal marginal cost

I ended up spending more time in thinking about this line than I should have. Obviously my first attempt was to think about software pricing where this would fail miserably. The cost of producing next unit of software is practically nil. Infact this is true for any thing which can be made digital. This is the reason MPAA and RIAA are fretting over this so much for the music and movie copying.

Pricing is a very interesting topic. First instance of this would have been during the bartering system in the early stages of civilization. Initial pricing techniques must have been very simple. Some thing on the lines it costed me this much in producing 100 kilogram of onions. With this much as markup I should price this item this amount. Ofcourse the compitition should be kept in mind over here.

This simple concept must have taken drastic turn with the introduction of branding. I am not sure when the pricing technique of how much the customer would be willing to pay for this product/service would have come into practice. I guess it has been there since early ages :)Here are few pricing scenarios

  1. Stock valuation – the most crazy and weird thing in the world to price. Is Google really worth what it is now upwards of $300?
  2. Software Licenses – This is again a art.
  3. Price difference between the similar quality branded and non-branded stuff. For example a simple white shirt stiched by a taylor in Bangladesh with GAP logo and without the logo
  4. Health Care costs in US