Penetration Pricing
Damien Geradin comments on the low-price introduction of Sony’s PlayStation 3.
On face value, Sony’s pricing strategy for the new PS3 looks pretty much like predatory pricing. However, it is an illustration of “penetration pricing” for new products: trying to build quickly a strong market position and recoup losses at a latter stage. The market for consoles exhibits substantial network effects (the value to customer increases with the size of the customer base) as well as side-effects (on adjacent markets such as game publishing, etc.). These features make it important to prioritize - in the short run - the size of the market share rather than the profit per unit sold.One of the links to cost-price estimates for component parts that Geradin includes is particularly interesting (even though I have no idea how accurate those estimates are).
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