Blu-Ray Player Prices

Late last year the Wall Street Journal reported that retailer's were decreasing the price of Sony Blu-Ray video players for a number of reasons. The most obvious is due to the law of demand - as prices fall, quantity demanded by customers increases. But that is not the whole issue, and the implications in regard to complement good and substitute goods is also driving why retailers were cutting Blu-Ray video player prices.

A complement good is a good that is used in consumption with another good, such as Blu-Ray video players and Blu-Ray DVD's. Thus to get the benefits of seeing high definition DVD movies one needs a high definition DVD player - and Sony's version called the Blu-Ray is the one that won the technology standard war recently. Economically, as the price of a complement good (Blu-Ray video player) decreases, then the quantity demanded for the other complement good (Blu-Ray DVD's) increases. So retailer's seem to be saying that they are willing to lower their margins (or make a loss) on Blu-Ray video players in order to make a profit on selling Blu-Ray DVD's.

A substitute good is a good that can be consumed in place of another good, and Blu-Ray video players (and Blu-Ray DVD's) are also substitute goods to traditional DVD players (or traditional DVD's). Thus as retailers drop the price on Blu-Ray video players, some consumers substitute or switch from purchasing traditional DVD video players and purchase the now lower priced Blu-Ray video players.

Additionally, as the article mentions, there are other substitutes to DVD players, such as downloadable and on-demand movies that may make the Blu-Ray or any movie player system out dated. Thus we see an element of potential competition (downloadable movies) leading to the decline in Blu-Ray movie player prices.