Race to the Bottom: A Response
In the article, iPad App Pricing, Matt Gemmell states that
The iPhone app market (and we must include iPod Touch here, too) has already bottomed out with regard to pricing, and I don’t believe that there will be any significant future shift to a more sustainable pricing model there.
I would argue that this is just the ebb and flow of a truly free market. One of the central themes to Economics in One Lesson by Henry Hazlitt is how competition drives prices down…and this is a good thing for consumers. At some point, however, the price gets low enough that the profit motive for, in this case developers, will no longer be there. This will cause there to be fewer developers which will be bad at first but it will drive up the price because those left will find that they can start to charge more with less competition. At which point, more developers will join, prices drop…round and round it goes. This is how a healthy market is supposed to work. If someone interferes with it, you end up out of balance. In the case of price-caps, profits are too low for anyone but the “big guys” to participate and you wind up with fewer options for consumers (a bad thing). In the case of price-flooring, consumers are hurt by too high prices and/or developers are hurt by consumers’ motivation to pirate.
I do agree with Matt that if you make a decent product you ought make a decent profit. The consumers will let you know if your product is decent by whether or not they purchase it and the market will decide what a decent profit is.
