Uniform Prices for Online Music Are no Way to Maximize Profit - Essay Example

Uniform Prices for Online Music are no way to Maximize Profit Almost every consumer is left with some sense of satisfaction is they feel that they have got a bargain when purchasing a product. The difference between the price that a customer actually paid and the highest price that they would have paid is known as a consumer surplus. The consumer is able to get a product for less that they were prepared to pay for it, so they get this benefit. For the selling side of things, the seller is always trying to maximize the price of a product but is concerned at pushing the price too high, thus scaring off potential customers.

For a seller to get more of the economic surplus from a sale, he or she is looking to sell a product for a price very close to the maximum limit that a customer is willing to spend. However, because not everyone has the same price in mind when purchasing a product, it can be difficult from the sellers point of view to determine the appropriate price. Research carried out by Ben Shiller and Joel Waldfogel found that the uniform price that university students were willing to pay for songs on iTunes was much higher than Apple was actually selling songs for.

One workaround for setting the price is for sellers to charge an entry fee and then a very small fixed price for each song. This provides benefits for both seller and consumer, as producer surplus can increase considerably and consumer surplus can grow due to the fact that consumers would buy songs than they would otherwise not consider at a higher uniform price.