Purchasing Power Parity: Fair pricing for SaaS products
scastiel.dev
scastiel.dev
I don't want to go into fair or unfair as the author does (that is a very complex discussion), but it is definitely the most optimal way to price your product. The basic idea is – charge every customer the max they are willing to pay. As long as everyone is above the break-even point, you will maximize your profits.
This is definitely not a new idea ("emerged these past few months" as the author states). I remember people would pack their bags with boxes of Microsoft Windows and Office when coming back from foreign trips. Same goes for subscription pricing. That premium $20/mo Netflix plan costs $4 in Turkey.
It's also a bit weird to see a service advertise their price discrimination. You are essentially saying "your country has a shit economy, so here's a discount" on the checkout page. And then are you also going to show the opposite – "you are in the USA so need to pay 50% more than average for this product"?
Most rooms within a given hotel just aren't that different. (ADDED: And to the degree that a room of a given size with a King bed might have a better view/light than another room, large hotels basically make it about the luck of the draw.) The main price discrimination is based on date. Businesses will eat the $400+/night rooms in SF when there's a big event at the Moscone. (Though there are also room blocks and negotiated rates.) Individual tourists will, in many cases, just go a different week and/or scour the listings for an AirBnB that's hopefully a bargain and not a too good to be true.
Airlines have a lot of levers related to status and price-sensitivity for products (seats) that don't have markedly different costs to deliver. Airlines could presumably offer business class seating, even internationally, for much less of a markup than they do. But the average family going to see grandma probably isn't willing to pay even a 30% markup much less a 2x one. So you do different classes and even levels of service within classes.
That is why Medicaid pays less than Medicare, or federal government employee coverage. Or Tricare for military or Medicare for old. The insurance company becomes the fall guy even though the payer is directing them to require more extensive prior auths for certain populations, or reduced reimbursement such that fewer providers are available.
Government leaders can then give different populations different levels of healthcare, while simultaneously claiming they are giving everyone healthcare.
I bet UK’s leaders are jealous now of the US’s leaders, since they have to answer questions about NHS that they cannot deflect onto third parties.
For example. if you are going to have laser eye surgery, call 10 doctors and you might see a 3-5x difference in price.
Even a small difference in probability of complications makes a huge difference for something as vital as the eyes.
The reason is because if someone in a poorer country gets a good at a lower price than someone on a richer country, that person will have less pressure to raise their prices to eventually reach real equality.
So the only real driver for segmentation for prices is to maximize revenue, not to be more fair.
I remember that before the EUR, the items in Zara stores had the prices in all European currencies (ESP, ITL, DEM, etc). It was simpler for production to just have one single ticket will all possible prices. If you made some algebra to compare actual pricing, you could see that prices were very different, but not because of fairness.
For example, at the time, the absolute value of a Zara product for Greece was above the absolute value of the same product in Spain. The GDP per capita of Greece was lower than the GDP per capita of Spain, but at the time in Greece Zara products were perceived as luxury items and in Spain were perceived as low cost, so Zara capitalized on that perception.
Unfortunately, that's not how the world works. There's a bid and an ask. The bid for outside groceries is usually zero. But I still think about it.
Someday, Amazon will let us buy and sell items in their warehouses without taking delivery -- that'll be a good day.
Maybe for the one doing the arbitrage. For the rest of the world, having every little purchase be akin to buying tickets to a concert or sporting event will be a nightmare.
The loyalty discount cards enabled them to mail you coupons specific to your purchasing habits, but the proliferation of apps has even further refined it to be on a day to day or even hour to hour basis with push notifications of coupons just for you in your app.
Most big grocery stores chains would have socioeconomically modeled and geographically analyzed their customer bases, and are aware of how much people are willing to pay for this sort of convenience.
At least according to https://www.cnn.com/2020/09/30/business/walmart-store-redesi...
To reassure value shoppers that a minimum percentage of the purchase price is going towards the facilities, thus making it self-evident that they are getting the best possible deal.
Whereas a better maintained store by definition cannot offer a lower price and still be profitable.
In case of software (video games are good example here) it might also move people from "just pirate it, $60 is my entire disposable income for this month" to buying from you
Given network effects, and depending on your horizon, I'm not even sure everyone needing to be above your breakeven is required.
Only if you have no competition. If you do, you can expect them to undercut your most profitable markets.
https://www.computerworld.com/article/2588337/amazon-apologi...
Also, they have to deal with sellers. If you remember it was once upon a time that if you had Amazon Prime, you could buy items cheaper (including shipping) than non-prime members, because that hefty $75 fee made a "special members group" that could be directly marketed to. But now if you calculate shipping and price it is the same for Prime and non-Prime (if non-Prime selects two-day delivery).
Not exactly. They gave you option to purchase cheaper digital only one. Not blocked physical games altogether like MS tried before. Big difference.
Hence the popularity of Turkish and Pakistani VPN tunnels.
Yes, but it ignores some second-order effects. When you leave some money on the table by charging some users less than the max they are willing to pay (often referred to as consumer surplus), you get some benefits like more word of mouth, higher likelihood to get repeat purchases from a customer, and so on.
Think of the feeling you had the last time you bought something and thought "oh, this is so expensive i can barely justify paying for it" vs "oh my God, this is so worth the money I'm going to feel good for the next week and tell all my friends it's a no-brainer".
Most people underestimate these effects when they price discriminate.
It makes a big difference if word of mouth was 1% increased versus 20%.
(And then there are 3rd order psychological effects - people tend to increase their perception of how valuable something is when they pay more. that’s kind of the BMW strategy!)
What we’re left with is a world where we make decisions on easy measurements. That does not necessarily mean including 2nd order effects would change the calculus. And if you’re doing 2nd order, how can you make smart business decisions that aren’t just your gut?
Human psychology is really complex, situationally dependent, and cannot be generalized from our own experience. That’s why companies rely on data, even if it’s incomplete.
https://www.joelonsoftware.com/2004/12/15/camels-and-rubber-...
> Take my advice, offered about 20 pages back: charge $0.05 for your software. Unless it does bug tracking, in which case the correct price is $30,000,000. Thank you for your time, and I apologize for leaving you even less able to price software than you were when you started reading this
At the time the author was creating a bug tracker (if you want a shallow interpretation).
Such a difference cannot be explained by PPP or insurance factors. We might conjecture that consumer expectations account for the price discrimination, e.g. visitors from Europe may be accustomed to high quality integrated mass transit (including to/from the airport) and thus resent a high car rental price, whilst Australians and Americans assume they'll need a rental to get around, with consequently higher willingness to pay.
* tested with UK, France, Germany, Italy, and the Netherlands.
Based on what, IP?
What are the links you're using to check the prices? And are you using a VPN to change your IP location, or something to do with the passport associated with an Expedia account or something, or is it a billing address? And what airport and car rental company are you looking at specifically?
I want to make sure it's reproducible. I know Americans in Europe often wind up paying more to rent, but only because many of them require the less common and more expensive automatic transmissions. But you say you're selecting an identical rental so that can't be it.
This is one of those urban legends that's been around for a while. And maybe some airline tried this once 12 years ago but that's all.
I mean, do you have a link to a site right now that demonstrates this?
Go to any American car rental website and make a reservation as a visitor/wirh a foreign address (try a Europe or a low PPP country, airport pickup) and compare the rates for yourself. I don't know if a non-US proxy is necessary.
You'll need a foreign credit card to complete a rental for real.
OK... I'm checking out Hertz using a VPN that puts me in Bucharest, Romania. In an incognito tab, at the OTP airport, Dec 1-8, 30+ yrs old, the 3 cheapest car is 233.29 euros with the button "pay at location".
When I do it from a USA IP for the same airport and everything, it sends me to a different Hertz site that advertises the same cheapest car as 216.00 euros with a "pay later" option (same as "pay at location"), or 181.51 with "pay now".
However, when I look at the fine print of what's actually included, the US site does NOT include sales/VAT tax (19%) or theft in the quote, which the Romanian quote does. There might be further differences too, since I'm only going by the bullet points and FAQ, not the actual agreement.
All in all, it makes it challenging to compare prices because they change depending upon the options you select, and the default options are different depending on which country you're booking from. But the prices all seem close enough to suggest that prices are the same, and then any illusions of "oh it's 40% cheaper in this country rather than that one!" are NOT due to nationality, but simply due to whether the quote includes tax, theft, is prepaid or paid at counter, etc.
I simply said “I’m from country X” during the booking process. Same website, same vehicle stock, same inclusions, same taxes, same T&Cs. 40% different rate code (actually 38%, if I recall precisely).
Also, I have first-hand knowledge. I’ve worked on travel sector booking systems. Others here have explained in detail the many varieties of segmentation applied in the sector. From my experience of seeing the actual source code and business rules in a production system, they’re right.
This is not an extraordinary claim requiring extraordinary evidence. It’s already widely known and documented.
And your explanation makes no sense, because prices are advertised clearly in searching long before any "I'm from country X" dropdown, which only appears in the final stages of booking. Prices don't change after you put in your driver's license nationality.
Nor are you providing a single link to any site where anyone can test it out. So yes, it seems like a myth, an extraordinary claim that does require, well not extraordinary evidence, but just evidence at all.
Steam does it for most games (though its actually set by the seller)
For many flights there is no single price that would allow the airline to operate the flight without making a loss. Some example for a 100 seat plane:
1. Sell all tickets at $100: Plane 100% booked, revenue $ 10,000, which is less than the cost of flight.
2. Sell all tickets at $200: Plane only 60% booked, revenue $ 12,000, better but still less than the cost of the flight.
Reality: Sell 15 tickets at $400, then sell 60 at $200 and sell 20 at $100. Now you make $ 20,000 with a 95% booked plane.
Your new problem is how to avoid the $400 people buying a $100 ticket, because that ruins your whole optimization. The way airlines do that is to make many tariff classes with a lot of rules and a limit to the number of tickets sold at a certain class. They then change that a bit based on demand once the flights gets closer to departure.
The rules are relatively simple things (this was invented in the mainframe computing time and some of those systems are still around), common examples: A minimum amount of time before departure (e.g. you can't but the $100 ticket for a flight that's tomorrow), a minimum stay time (e.g. return flight has to be at least a week after arrival, filters out business travel), only valid if the trip includes a weekend-night (again filters business), only valid on a connecting flight etc.
The optimization is not a simple thing at all, I've seen setups with large Spark/Hadoop clusters to calculate the optimal pricing for each tariff-class and the amount of tickets to allow on each flight for each tariff-class. Because that's the output of most revenue management systems. And then on the other side of things the flight booking sites or travel agents are trying to find the cheapest combination for each customer, because these tariffs are not "an SFO-JFK return" but more like "leg 1 SFO-ATL, leg 2 ATL-JFK, 5 days later leg 3 JFK-SFO" or something like that. And you can buy any combination you want as long as it fits the rules for each tariff class.
? It's definitely explained in terms of PPP.
If you could only have one single measure to use in terms of price discrimination, it would be that.
Europeans have less purchasing power than Australians.
Ergo, price difference.
I'll bet Philippine visitors get an even bigger discount.
With physical goods price discrimination is limited by arbitrage opportunity in moving the good from one country to another. With intellectual property licensing can tie a good to a location which means that the price discrimination can effectively be any amount.
My personal opinion is regulation should proscribe the price discrimination past some multiple of purchasing parity to curtail the worst possible abuses. Having said that it's not a major real world problem while piracy remains as an outlet for abused markets.
Some places a dollar goes far, that cannot be construed as 'shit economy'. The place where a $10 USA haircut costs $0.5 need not be due to local (bad) economic situation. Similarly for food and other living essentials.
You're implying a strange causality.
The places with the highest PPP conversion factor are places like Colombia, Iran, Cambodia, Indonesia. The reason a dollar goes so far is because these places have no money. When controlling for PPP, 10% of the population of Cambodia lives on less than $2 per day.
So yeah, a dollar will go pretty far. And its because their economies are shit.
It is doing very fine. Thank you. https://www.marketwatch.com/story/indonesia-s-third-quarter-...
Since you are cherry picking examples, here are some more cherries. Countries where the amount of $ one needs to spend to get equivalent of $100 goods in USA:
Country $
------------
Turkey 36
Poland 52
Hungary 56
Mexico 56
Spain 84
Korea 88
Italy 89
Germany 95
Source: Wikipedia
First world countries:
Spain 84
Korea 88
Italy 89
Germany 95
All close to 100. Developing nations:
Turkey 36
Poland 52
Hungary 56
Mexico 56
Are all much lower. Seems like enough cherries to me to conclude that developing nations with weaker economies have a higher PPP adjustment.
In fact even the UN doesn't really put much stock in it, since the concept is too muddled for it to be useful across 190+ countries.
Ethnicity, the kind provable by family ancestry or genetics, is the usual replacement.
I think there are two angles here that are can be rational depending on what you are selling, and to whom.
One is "stakeholder consumerism" similar to e.g. fair trade coffee. Some consumers want their payment to be part of a system that shares benefits with other parts of the economy. The provider is saying to the rich world, who will provide most revenue: you pay more so that I can provide my service everywhere while maintaining some margin.
The other is reassuring people that your price discrimination "isn't personal". All prices must thread the needle of making the product more valuable than the buyer's next best alternative, but the alternatives vary from buyer to buyer. PPP isn't perfect but it's a non crazy proxy for what the buyer is giving up to have your product (eg one dinner in Switzerland vs a month's food in Cambodia). And yes, it's a weak proxy when one region has a really wide range of incomes.
In this case, it's an argument for price discrimination -- charging different prices to different buyers based on their willingness to pay. And in fact "textbooks" is one of the examples given on https://en.wikipedia.org/wiki/Price_discrimination#Textbooks
This allows you to lean on what's already known. Specifically, identifying market segments with different elasticity and enforcing the scheme.
Have people started using the phrase "purchasing power parity" to refer to a pricing scheme that corrects for PPP? I think "parity" might be leading people astray because it actually just refers to an adjustment to GDP or other indicators for purchasing power. It doesn't refer to a pricing scheme. I could suggest the name "Purchasing Power Parity Pricing" if you want something you can say you "support".
(That said: I think this is isolated to extremely high margin goods and will not translate to others.)
They aren't necessarily leaving money on the table, although an argument can be made that purchasing power parity isn't the best mechanism for profit maximizing using price discrimination.
The point the OP is trying to make is that this isn't some revolutionary new tactic that the author invented by understanding PPP on a deeper level than anyone else. This is a concept learned in intro to economics. And one that is used by a lot of online service providers already.
A bigger issue is that anyone with a VPN can access the discount
Some of them are significant per customer, and some of them aren't.
I wasn't really making a point about privacy.com specifically my comment was more to imply there are services that allow for arbitrary billing addresses.
I not saying it's impossible to bypass these checks, but you either have to be very tech-savvy person to do it right or you you even have to break the law.
Reason why there's an uptick in SaaS companies in Eastern Europe, Asia, and West Africa. They can out-compete on price already and will gradually manage to build software of similar quality as their counterparts living in higher cost-of-living countries.
This has been Freshdesk [0] / Zoho (both based in India) modus operandii for one to two decades now. And one I'm keen on living upto.
the other economic concept at play here is arbitrage, which is being able to buy low and sell high risk free.
In traditional software. SaaS has hosting costs, support costs etc.
If you have minimal customers, then your server costs don't need to go above the double digits. Servers will be almost 1:1, and licensing is usually 1:1. Considering them to be sunk costs is doing the math wrong. It's not like marketing at all.
I thought you meant some kind of pass-through licensing, but otherwise the expensive stuff like database licenses generally charge per core, don't they? That's going to scale very directly with your number of customers. If you need 4 web server cores and 1 database core per ten customers, then you should not be treating servers as a fixed cost, you should consider each customer to cost half a core and 1/10th of a database core license fee. It's not perfect but it's much much closer to reality than thinking about servers as a fixed cost.
Don't go buy 150 servers in anticipation of customers you don't have.
"A direct cost is a price that can be directly tied to the production of specific goods or services." yes that is the case here.
And if I look at the first search results specifically talking about servers:
https://www.ibm.com/downloads/cas/DG7NY5QW says servers are a direct cost.
https://blog.hubspot.com/marketing/direct-costs says servers are a direct cost.
take an accounting or pricing class if you're really interested in this stuff. that will explain it much better and more in depth than a few sentences here can.
And servers do not have to be coarse. They come in all sizes.
In particular I want an explanation of how servers are less direct then the wages of production staff. You can measure output similarly, and you can scale your number of servers much faster than you can scale your number of staff.
So even if you're the rightest person in the world, you've done an awful job of commenting. There's no reason to believe you, or to believe that you would actually address what I said if I did pay you. Otherwise I would actually be tempted to do so.
Passing the final price (or even just the currency) from the client to your payment processor allows a malicious actor to manipulate the price they pay for goods.
This tends to lead to consumer hostile behaviors such as (trying to) block VPNs and harassment of international travelers and migrants.
Automatically basing this on PPP will make governments much more interested in gamifying PPP measures (such as what Argentine did with the Big Mac Index). This is setting aside all the other issues with calculating PPP in a fair way worldwide.
It feels counter intuitive that companies acting in their best interest would be not in the communities best interests, but interestingly, it's definitely not zero sum game.
Particularly in this instance, wherein we have rich countries offering services at a discounted rate, it's actually hugely beneficial to almost everyone.
If you force a 'single price point' - the profit maximizing point will almost assuredly be much higher than most of the world can afford and so the net surpluses are lower.
Price discrimination in this case is reasonable.
Where it gets messy are for things like concert tickets.
As far as 'PPP gaming' - this is not a new concept, and SaaS is not even remotely relevant to anything at national level economics. The 'PPP' game has been going on since the dawn of time! Literally the first Mesopotamian writing systems revolved around bookeeping and pricing.
PPP is not going to be the driving force for pricing for any company that's sophisticate enough to do this - they will find the right price in France the same way they do in America. The PPP is a secondary measurement.
The problem in Argentina is that their leaders are corrupt and a bit dumb. Not an 'index'.
That said, there is still a lot of room for discussion about this.
This seems highly debatable in several fronts and likely is dependent on the specific circumstances of each market. In some cases it may function like providing cheap food and clothing, where it can be beneficial in the short term, but often causes mid to long term economic damage to the receiving economy by putting local producers/providers out of business.
Whether beneficial or not, the motivation behind this geographic price fixing is absolutely not fairness, but profit maximization.
While companies are free to charge prices they wish in different countries, I think it is against our self interests to have laws that help enforce this price discrimination. Consumers are already at a power disadvantage here, giving companies more power to charge the highest price they can only worsens that disadvantage.
> PPP is not going to be the driving force for pricing for any company that's sophisticate enough to do this - they will find the right price in France the same way they do in America. The PPP is a secondary measurement.
It was literally cited as the basis for the solution being discussed in TFA. I didn't say that PPP gaming was anything new (which is why I cited old examples) but pointed out that this already existing issue will become larger if the approach described in the article spreads.
> The problem in Argentina is that their leaders are corrupt and a bit dumb. Not an 'index'.
While Argentina is especially bad. Leaders are corrupt and dumb all over the world. However, the behavior I am referencing in Argentina was absolutely directly related to the Big Mac Index since they directly manipulated the price of Big Macs specifically. Their other manipulations of PPP are harder to attribute, but that one is pretty clear.
That is something completely different, and has little to do with price discrimination.
If the service is materially cheaper as provided by the 'rich country' - well, you say 'companies are out of business' - I say - consumers are getting massive surpluses. They can share those surpluses how they want aka social programs via taxation.
Of course, if the rich country is 'dumping' on the poor one to put players out of business, it's a different story.
"existing issue will become larger if the approach described in the article spreads."
My friend, price discrimination is already universal. There is no need to worry about 'spreading'. Everyone is doing it. They always have. It's only news to small companies who need to grow internationally and to the people that work there.
Argentina's manipulation of 'Big Macs' is an example of corruption (and stupidity).
I'm Jules, previously working on Exportator, a solution to generate Parity Promo Codes, now working on pricery.io to help digital products price themselves at PPP prices with Stripe in 5min.
Parity pricing combined with selling in localized currencies is a MAJOR move to increase international sales. They are 3 ways to localize prices:
1/ Display price in local currencies. Aka "cosmetic pricing". Do you know what 670₪ is worth? Same for $US for many 2/ Bill in local currencies. I wrote an article on how billing in local currencies help win precious % https://www.pricery.io/blog/how-to-turn-stripe-currency-conv... 3/ Parity pricing. Here is a calculator I made to give one an idea of the how a price feels in another currency: https://www.localizationtools.io/purchasing-power-parity-cal...
Love the topic, would love to know how to help the cause
PS: Regarding VPNs. A, very few people use it to cheat. B, if it makes you feel better, services like ipinfo.io index IP ranges used by VPN providers. Which means to cheat PPP one would have to use private VPN. In other words, 99,9% of VPNs can be detected, in which case, just default back to a $USD price. Pricery helps you offer cosmetic prices, PPP pricing, and VPN protection in 5min out of the box with Stripe. Would love to chat jules@pricery.io
Whatever system you think of to price discriminate, people will break it.
Funny little Canada price discrimination story: Cell phone data is really expensive here since there is no competition, so much so that it is often cheaper to roam on an international line in Canada than to have a contract with a Canadian Telecom, hence the US number.
I was aware of this potential issue when I implemented PPP on my course. It turns out almost nobody uses this trick, although a few told my about it. I guess when you are transparent with your users, they are actually happy to pay the fair price? Or maybe I’m too naive ;)
Some companies even make a fuss when you move between Western countries with similar economies for some reason. Lots of businesses are stuck in a "you were born in a country, live your entire life in a country, and will die in that country", which to be fair is true for most people, but far from all and there is often no resort.
It can get really complicated to manage data transfer between legal jurisdictions, remit tax correctly, and follow all local laws. Beyond that, the brand may be holding company that wholly owns distinct companies by country or region.
PS: Apple, probably Google too, have tiered pricing where you choose the price of your app or your content will cost and Apple takes care of the local pricing which is adjusted to your users purchasing power.
Surprisingly (or not), most SaaS I do business with give me parity prices. I really appreciate that and it makes me more loyal to them.
https://income-inequality.info/
It's really eye-opening stuff to see that someone earning US poverty level income of $11k means they earn more than 85% of people in the world!
You can see the code for it on Github as well: https://github.com/whyboris/Global-Income-Distribution
Like some companies have ridiculous things like MAP when comes to retailers selling their products.
Just because a lot people are getting gouged and don't realize it does not mean they are not being gouged on price. Ideally other competition would help balance out this information asymmetry. In the ideal sense that a competitors costs to produce the same product/good would be roughly the same or in at least similar ball park that if one company is pricing something insanely high it would stand out. Although there hosts of reasons this does not work out in practice ranging from limited or no competition. Other issues such as that most goods are not identical ect...
This is definitely a good argument for encouraging competition and increased price transparency.
Per country software pricing does not at all fit this definition. _Most_ products and services are priced differently in different countries. Food is cheaper, labor is cheaper, salaries are lower. Software being priced the same globally would just lock them out of buying it.
For the end user, if you buy a $60 game and it provides good entertainment value compared to other forms of entertainment in your country, that was good value. Your entertainment wasn't devalued because someone in Africa bought it for $10 or someone else torrented it for free.
I suggest just read the first paragraph of wikipedia: https://en.wikipedia.org/wiki/Price_gouging
Particularly these sentences:
* "In precise legal usage, it is the name of a crime that applies in some jurisdictions of the United States during civil emergencies. In less precise usage, it can refer either to prices obtained by practices inconsistent with a competitive free market or to windfall profits."
* "The term is not in widespread use in mainstream economic theory, but it is sometimes used to refer to practices of a coercive monopoly that raises prices above the market rate that would otherwise prevail in a competitive environment."
The term gouging does not always refer to the criminal/civil (depends on jurisdiction) act of price gouging. There is a reason I said "gouged or overpay" and not just gouged because the term does have a few connotations and the overpay clarifies more of what I am getting at.
As to your second point if the company is still making money in these countries with less purchasing power at lower prices why not just use that price then? Those people would not be locked out of purchasing it then. Also not everyone in a wealthy country is wealthy or has lots of extra money. High pricing in such countries also locks those people out. This argument is basically saying someone should just pay more because they are likely to have more money, and not pay the actually value of the product or goods.
You are combining multiple things in this example such as utility, opportunity cost, economic value to person ect... The same item or product weather priced at $1 or $1,000,000 dollars on average is probably gonna to produce similar amount of utility from person to person. However, with this extreme of the example I made above there are going to be huge difference in particularly opportunity cost. The utility in your case the enjoyment derived from the game of course is going to be same regardless whatever else someone paid for the same game as well.
Now companies generally often want to charge as much as they can for a good. Ideally, for every person a company sells their goods too they would charge economic value for that particular person instead of something like market value to maximize profit. Now in a competitive market a company is unlikely to be able charge whatever they want and still remain in business, but in less competitive markets this not necessarily the case. Even if people can afford the goods at these inflated prices in less competitive markets. Exact dollar amounts aside, higher prices are going to lead higher opportunity costs for people which is not a good thing.
This is just side note you since mentioned value in your example. What is the true nature of value has been argued quite a bit throughout history. What value is partially depends on what one believes is the correct theory of value. I tend believe all items have some intrinsic value as well as a subjective value. Let's take an other example let us say iron and dirt both products of the Earth. I would say the iron would have a slightly higher intrinsic value than just dirt. This is because iron can do lots of things that can provide more numerous types of utility and that boils down to its material properties. Regardless what one feels or thinks of iron it's going to have the same material properties. However, this does not mean dirt has no value as well lets look at the subjective side of value. A farmer for instance is going to value good dirt probably more than welder that fabricates objects from iron and steel. So value between the two is subjective based off the individual. So the value of good dirt is likely to be higher for a farmer than that of a welder. However, this still does not mean dirt has no intrinsic value either based off it's properties. The properties of dirt can be used to grow things, and certain types of dirt such as clay can even be great building materials because it can be vitrified into bricks for example.
In the case of media distributed over the world wide web any sales block is obviously completely artificial and done only for price discrimination.
The customers know. It's not a sneaky secret, they can see it right there on the website.
Adobe used to be infamous for this kind of bullshit and no body liked them for it.
By the same logic, if the customer decides the product doesn't provide enough value to justify the artificially high price the vendor hasn't lost a sale when they pirate it.
They weren't going to buy it anyway so it shouldn't matter to the vendor either way. :P
By stating that the end user should only consider the price relative to the value gained, that is stating that the end user should give up all room for negotiation right from the start, and pay the highest price from the window of negotiation. It is not irrational for a buyer to negotiate a lower price, perhaps by waiting for the price to decrease over time.
Heck, it can even be worth it to avoid/boycott a product as a way to influence the starting point of future negotiations. None of these strategies are by any means "irrational". What would be irrational is to accept the highest possible price without considering the range of negotiable prices.
Which is only fair, given that we're a developing nation and all that, but a first for me. We normally pay +20%. So I'm now totally convinced of PPP being fair.
On an unrelated note, SaaS prices can lead to funny situations, especially when tangible costs per customer approach zero. At work we were negotiating with a SaaS vendor.
Them: our quote for your intended use is 230K/y. Us: Actually, we only have 20K of budget. Them: That'll work too.
Makes you wonder how far below 20K we could have gone.
You can see the same effect with railways and aeroplanes. There's definitely plenty of operational costs, but the capital costs are relatively high so you want to keep your capital goods (the railways/trains/planes) active all the time even if you only make a tiny profit on each service. However, these businesses often only pan out if they can attract high-margin customers (e.g. business class flyers).
How people here in Europe, for example CZ. Can buy things for even higher price in EUR than in USD, yet median salary here is 4x smaller than median salary in US. Ridiculous.
https://europa.eu/youreurope/citizens/consumers/unfair-treat...
"Price discrimination is not allowed"
Think of how your valuable NA/European customers will react knowing their peers in country XYZ get the same product for 80% less?
How will that affect the perception of your brand?
It's quite a complicating factor.
Bonus: You don't need to worry about/collect/pay VAT in God-knows-how-many-different-countries around the world.
To ensure this system is not abused, you need to match consumption IP location and purchase IP location. If you have consumption via wildly varied IPs that would be a red flag as well. By letting the price difference be known, you encourage a normally willing and able customer to use you via VPN instead.
At small scale, you get more money (in absolute terms) using price discrimination with no validation on the back end. As your scale grows, you reach a point where it's worth the monetary and time investment to add validation and things on top.
At the end of the day someone using a VPN to get your product for $5 instead of $20 doesn't matter that much unless you're so wildly popular that people are clamoring for it, at which point you theoretically have the staff to start adding in some protections.
To my eyes it seems very fair to offer a product at (appromimately) the same real price for everyone in the world, and let people choose whether or not to buy it.
And for what it's worth, commodities are also priced at what the market can bear, not at their marginal cost of production. It's just that competition pushes those prices down very close to the marginal cost. This course has competition too, in the form of all the other articles and tutorials that are available free on the internet. It's not like this course is the only gate to otherwise-inaccessible knowledge.