So harking back to foundation economics, if we assume that the production & distribution cost of a DVD can be treated as zero, the seller of DVD's will set a price which maximises revenue. So assuming that the relevant demand curve (one of the red one's on the illustration, the blue one has been air brushed out by our assumption) is nice and smooth and that there is just one solution, at what point does the marginal gain of a slightly higher price balance the marginal loss of a customer? A bit of work on the back of an envelope reveals that point to be the place which delivers the rectangle on the origin of the largest area, so the answer is that it all depends on the shape & position of the curve - unless the shape is a positive hyperbola in which case it does not matter what the price is: all give the same result to the producer of DVD's, so he might as well settle for a high price and low bother.
Intuition says that if demand for a DVD is strong, then the producer does best by setting a high price. But all the diagram says to me is that if demand gets stronger, that is to say the red curve moves to the right, the producer can now get a better result with a higher price. But that is not to say where the best result lies, so I must be missing something important. Does the answer lie in the steepness of the curve: if quantity holds up well against an increase in price, then increase it? Maybe I will continue with the envelope offline and report back.
All this being triggered by reading this morning in a book by Antonio Damasio an anecdote concerning the play 'Happy Days', a Samuel Beckett play which, as it happens, we have seen and reported (see February 23rd 2007 in the other place). But a report which bears in no way on the anecdote. so I want to see the thing again, to better understand the point Damasio made this morning. Turn up Google and Amazon to find that I can indeed have a DVD of the play, but instead of the £5-10 I usually pay for such things, I am expected to fork out £50 or more for the collected works - or rather less for the wrong work - unless I want a DVD that only works in the US. I shall just have to wait until the thing turns up again, on the stage or on a table in Hook Road Arena. Bets taken on which happens first.
Google also points me to http://www.beckett.com/ which I had thought might be helpful but turns out to be about baseball. Can't believe everything you read on Google.
PS 1: no idea why clicking on this illustration works in the way it does. Maybe Wikipedia, from whence it came, is building some kind of image protection into its stuff to protect themselves against light fingered people like me.
PS 2: maybe I am wrong to neglect the costs of production & distribution. Given a master, the cost of burning a DVD and sticking it in the post might only be a couple of pounds or so, but maybe the costs of maintaining a large online catalogue are higher than I think. Thousands of items available, most of which sell in ones and twos a week. And ones and twos a week may not generate the cash needed to pay for the master in the first place. Certainly hard to make a crust on that basis in a shop made of bricks these days: Screwfix might manage but HMV struggle.
PS 3: maybe I will settle for YouTube - where I can see a perfectly respectable Italian production in English. Not on the comfort of my sofa, but at least for free. Do the Italians mind it being there?
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