David Pogue talks about what he calls the App Store Effect:
The App Store Effect says this: if you cut a software program’s price in half, you sell far more than twice as many copies. If you cut it to one-tenth, you sell far more than 10 times as many. And so on.
In other words, buyers are very responsive to price changes, i.e., the price elasticity of demand is less than -1. In these situations cutting prices will increase revenue, and for a product like software that has zero marginal cost, an increase in revenue means an increase in profit.
The question is whether this is really true, or whether it’s just Pogue’s wishful thinking, as with the Laffer Curve.
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