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Comment by mikeash | Hacker News Reader

You don't need price discrimination. You can make money without it. You want price discrimination to make even more money.

Edit: a lot of people seem to be confused about what I'm saying and are telling me how price discrimination is good. I'm not saying it's good or bad. I'm saying it's not a need. Existence proof: many companies that don't do it.

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You say this like game developers are rolling in cash. In reality most indie game developers are making just enough to keep making games. Any optimization in the ability to make money can make the difference between the marginal game developer dropping out of the market or not. If you want a rich variety of indie games then you should be okay with allowing whatever non-coercive pricing strategies developers are using that works, and if you don't want indie games then don't buy any.

They're free to use whatever pricing strategies they wish, as long as people retain their inherent right to resell things they purchase.

This is why large game studios are generally moving to a SaaS model.

Most game developers are barely viable businesses as it is (frankly a lot of them ought to find a different industry if their aim is to make money). Without price discrimination we'd see more developer bankruptcies and ultimately fewer games being made. (Up to you whether you think that would be a good or bad thing).

I'm curious, what are some good examples of companies/industries that are successful in not price discriminating across national/world-region borders?

Most of markets segments I can think of (pharmaceutical, automotive, SAAS) do it in one way (direct price discrimination) or another (separate products for a region).

Apple comes to mind. Their products are usually even more expensive in poorer countries.

Just about any commodity would qualify. Oil companies aren’t giving discounts to poorer countries or selling them a cheaper inferior product.

Lots of indie software makers can’t be bothered to put in the effort to target individual countries, and just sell at one price worldwide. I believe both Apple’s and Google’s app stores work this way, with no ability to set a different price in different countries.

You can't compare physical goods to software in relation to price parity. The cost to sell an iPhone in South America is higher for Apple then it is to sell one in the US so it makes sense that they cost more. For a game it costs the same, and costs virtually nothing for each sale.

Google play supports setting different prices by country.

You’re saying, they don’t price discriminate because they can’t.

I’m saying, the fact that they don’t proves that it’s not necessary.

These two statements are perfectly compatible with each other.

Again: I’m not arguing for or against price discrimination. I’m just saying it’s not a need.

Not necessarily. Sometimes you use profits from the high priced copy in a country with high purchasing power to cover up the losses from the lower priced copy in the country with lower purchasing power. In the case of games it makes sense especially if you rely on a large community of players for its success. You need more people to play it but you can't sell it at a loss everywhere in the world just to access all markets and gain the numbers.

How can you possibly sell software at a loss?

Tech support and bandwidth, maybe?

I'm pretty sure I costed Microsoft money when I was younger and poorer, because I knew how to download most security updates for my pirated Windows without getting caught, so I costed then bandwidth and payed nothing.

Maybe they let that happen or did not work as hard as they could have to prevent it because they figured they'd recover their investment when I grew up and became a paying customer.

Tech support is optional. Bandwidth is a possibility, but you'd have to work really hard to lose money that way, given how cheap it is. Sell your game for 10 cents a copy and you'll still make money.

I may be missing something but what pays the developer salaries and rent? Or maintaining the infrastructure for your sprawling online game?

Developer salaries and rent are the same no matter how many copies you sell. Each ten-cent copy sold brings you closer to covering those costs. If you don’t make enough to cover costs, you’re not selling at a loss, you’re just not selling enough.

The marginal cost on infrastructure is like the marginal cost on bandwidth: really small.

> you’re not selling at a loss, you’re just not selling enough

Ah, you could have just said it's a matter of wording. Yes, what I meant is you could sell, and make a loss. So in order to drive up sales hoping that it will actually start a positive feedback loop where the growing community attracts more buyers, you could sell your software at different prices. You probably noticed even some cloud services sell for different prices depending on country (MS gives you some cloud things 20% more expensive in Germany as opposed to US).

And saying the infrastructure is just bandwidth is like saying you just a keyboard to code. Random example, I assume many big name games face similar challenges. [0] I think we can agree maintaining a setup that allows players all over the world to play in good conditions while preventing cheating, and many, many other services costs and involve quite a bit more than just the net link.

[0] https://www.networkworld.com/article/2895129/big-data-and-ba...

Your previous comment referred to losses in a single country. It makes no sense to talk about total profit/loss including overhead in that context. How do you allocate your shared overhead between the two countries such that you can say you made a loss in one country but a profit in another? If you're "selling at a loss" in a single country then the only reasonable interpretation of that is to account for the additional costs involved in serving that country, but not any shared overhead.

Yes, there are lots of other costs for running a network service besides bandwidth. But those are heavily if not completely independent of the number of users. Your anti-cheating effort costs about the same regardless of whether you have a million users or ten million users.

If you expect your game in India will sell 50.000 copies at $60 but 250.000 copies at $10 you are losing out on some of the money ($500K in this example). On the other hand you can sell the same game in the US for $60 or $65 knowing that the predicted sales will cover up for the money that you didn't make in India. Bonus, you now have 200.000 more active players in the world than if you tried selling everywhere at a middle price point ($50-$55...).

So you can sell the game at a loss meaning once your sales have dried up you haven been able to make a profit or even cover your costs. And you can "sell at a loss in one country" meaning you're willing to let that one country not cover its share of the predicted income (meaning if you sold everywhere like that you'd go bankrupt fast) just because you can get more market share. And some other region will compensate.

I'm sorry you would rather nitpick on the wording instead of the point being made, which I'm sure I explained pretty clearly. And this already exists in practice so obviously the logic behind it is sound.

> But those are heavily if not completely independent of the number of users.

So what if the number of users/sessions hosted increased by 3 orders of magnitude, right? The databases, the game servers, the login servers, the web servers, security, management, and everything else that also has to be geo-located will just balloon to accommodate the extra users or markets at no cost as all IT infrastructure tends to do.

Again, here are some random numbers from almost a decade ago for a game that's probably far less demanding than anything today [0]. Having x US servers vs. having 3x US servers and 5x Asia servers is not quite "independent" of user numbers and location.

[0] http://twvideo01.ubm-us.net/o1/vault/gdceurope2011/slides/Ma...

Offices pay rent, developers need salaries, electrical bills need to be paid, contractors need to get paid, as well. Software isn't free to create.

When talking about selling it at a loss in one region and making up for that by making a profit in a different region, the relevant figure is the marginal cost, which is approximately zero.

When talking about selling it at a loss in one region and making up for that by making a profit in a different region, the relevant figure is the marginal cost, which is approximately zero.

It's easy to "win" an argument if you just label all information that would make you wrong as "irrelevant", isn't it?

“Selling at a loss” is about the marginal cost versus the price. I’m not “labeling” anything. That’s just what it means.

It’s perfectly valid to talk about overall profitability when accounting for non-marginal costs, but that’s not the phrase you use to talk about it, and saying that some units are sold at a loss while others are not is nonsensical in that context.

Presumably the development costs and overhead costs are factored in along with a projected number of sold units to come up with a baseline 'cost' of each copy being sold. Selling a copy for less than this 'cost' would be selling it at a loss. Selling a copy for more than this 'cost' would be selling for a profit. Being obtuse and insisting that you can't sell software at a loss because of the marginal costs is not furthering the conversation at all, it's just being pedantic.

> Presumably the development costs and overhead costs are factored in along with a projected number of sold units to come up with a baseline 'cost' of each copy being sold.

Yes, and that is the error. The number of copies is not static, and might as well be considered infinite. With digital goods there is effectively no limit on the number of copies which can be produced at near-zero marginal cost, so cost per copy is a meaningless metric. Unlike physical goods where you need to recoup your variable costs for materials, labor, and capital on each item sold before you can even think about offsetting the fixed cost of R&D, every sale of a digital good contributes to the bottom line regardless of the price.

The single most expensive game to develop to date was apparently Star Wars: The Old Republic at $200 million[1]. If each of the 7.7 billion people on the planet had a copy, however, the development cost per copy would only be about $0.026, affordable even for the most limited budgets. Say that 5% of the population would be interested in trying it out at a price of just $0.25 per copy: that's $481M in revenues, or $281M profit. Or they could choose to make it a monthly subscription service at prices attractive to just 1-2 million players and lose money overall while charging subscribers $100 apiece. Same development cost, different distribution models. There is no predetermined cost per copy below which they are selling at a loss and above which they are selling for a profit.

[1] https://en.wikipedia.org/wiki/List_of_most_expensive_video_g...

The specific example was selling at a loss in poor countries because you need more people using your software to bolster the network effect. This makes no sense: each copy sold in a poor country at a low price is still making you money, it just isn't making as much money as the copies you sell at a higher price.

This isn't pedantry, this is discussing the actual topic of the conversation.

But it is pedantry because the person you were having a conversation with was using imprecise terminology and you were disagreeing with the words as written instead of the words as intended. Fine, they used the wrong words. Their meaning was clear. I think having the conversation is good as long as we can extend a little leeway to people that don't always have the correct terminology for a particular discussion.

You still have to cover expenses (development + running costs - like maintaining your multiplayer network). The way you set the price combined with the projected sales should lead to profit. But you may very well decide to have markets with higher purchasing power to subsidize the ones with lower purchasing power so that you can cover those costs and make a profit. You could very well just have losses.

If the answer to your question was "no way" then software would be the one guaranteed way to swim in money.

You certainly can have losses overall, but there’s no way you can have losses in just certain regions, unless your per-unit price there is only a few cents.

It's all about risk versus reward. Making an indie game for the saturated indie market is a risky endeavor. The potential for high reward has to be there for developers to spend the time and money to make a game with a low probability of success. So some games absolutely need the ability to maximize profitability, including price discrimination (market segmentation).

You need the money if you want to make the product.

You need money. You don't need the maximum possible amount of money.

No, but you usually need more than the minimum possible retail value.

You also want price discrimination to let poor people use your product.

Some people care about that sort of thing even if it costs them money. For example a bakery might choose to give away their leftover bread at the end of each day, so poor people can eat. This costs them money because some people might choose to get bread for free when they could have bought it at full price.

Nothing says you can't charge the poor people price for everyone. You want price discrimination to get wealthier people to pay more.

To take your bakery example, they'd ideally like to charge more for their bread when the customer is rich, but that's not practical, so they're stuck charging the same price regardless. Many businesses work around this, imperfectly, by using coupons or sales.

But importantly, the bakery can't charge the poor people price for everyone or they'd bankrupt.

I think many indy artists are like that, that's why they say they'd rather you pirate their games. They could have used more strict DRM instead, if they only cared about money.

> They could have used more strict DRM instead, if they only cared about money.

Maybe, maybe not. DRM costs money and imperfect DRM can cost future customers, so in the case of an indy developer, it might be a net loss.

> But importantly, the bakery can't charge the poor people price for everyone or they'd bankrupt.

In this situation the bakery is basically running a charity funded by the extra money they're getting through price discrimination. That's separate from their role as a business.

The minimum sustainable price in the absence of price discrimination would not be the "poor people price" or the price paid by the rich, but rather the cost of material, labor, and capital which lies somewhere in between. Price discrimination and the absence of arbitrage allow the bakery to charge rich customers more, but it's entirely their choice to use that extra income to provide goods at a loss to those of lesser means. They could instead just keep the extra revenue for themselves.

Yes, and old games sell for less than new games, allowing poor to afford more. What is your point?

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