The Economy of Happiness

Written by Cliff Harris

August 18, 2008 | 09:10

Tags: #cliff #cliff-harris #column #democracy #developer #guest #harris #kudos #piracy #pirate #utility

Companies: #positech

Both the recent arguments about the right price for Braid, and my own recent dialogue with games pirates (where cost has been cited as a major cause of piracy) has got me to realize something very important about the price of games.

Nobody agrees what any game is worth.

Any economist will tell you that this is the case with all products, and can even calculate how much 'waste' there is as a result by referencing the products value to a customer, called the 'utility'.

Because of different incomes and tastes, the utility or worth of every product is different for everyone. I love bacon, and its utility is probably higher to me than it is to Joe Average. The problem is, the supplier of bacon can't charge us different prices and wants to sell to us both, so he sets the price as the highest Joe Average will pay, and as for me, I get a bargain.

By definition, there are always people benefiting from this, and the seller is always losing. There is however, another group that is losing, and that’s the people who simply can’t afford it. These guys never get any bacon, even though they would probably like it.

Now you might be thinking that 'Hey that's nonsense, because the price of bacon is tied to the cost of production’, and that’s where games as a digitally copyable medium come in. The marginal cost per unit of production for a PC game sold online is close to zero, maybe $0.10 in bandwidth, which means that developers like me can be profitable at any price from 10 cents a copy to a million dollars (in terms of a single unit, not the recouping of the whole investment, which is a different problem). The problem of course, is picking the price.

Clearly the aim is to maximize revenue (not sales, or profit per unit), and you can do some nifty sums to choose the right price if you have perfect knowledge about all your customers utility from the game. Obviously we don't have that. Even if we did though, we aren't really doing the right thing.

In an economically perfect world everyone would pay a different price for the game, and it would exactly match their utility. Hardcore fans would pay $500, whereas casual disinterested kids from South America would pay $0.10 because they’ll only play the game once. This eliminates all waste and ensures that products that create a lot of happiness (utility) get made, even if a small number of people enjoy them.

Now your immediate reaction may be "no way, I'm not being ripped off by paying more than anyone else", but it happens to you already, ALL THE TIME.

Movie theaters used to be the classic example. They charged cheap 'afternoon matinee' rates. Why? because only the retired and the unemployed could see a movie at that time, so they could charge less and get the low-income people in, knowing full well the well-heeled workers couldn't beat the system.

Supermarkets do it all the time too. Do you really think that the price difference between economy sausages and deluxe executive sausages is purely the difference in the ingredients? Of course not. It's a way to get people with no money to buy for less, and people with lots of cash to buy more. This way you gain the benefits of different prices. They even give the economy products artificially cheap and tacky packaging to 'scare' off the wealthier customer. Ever wondered why the packaging on economy products looks so amazingly bad? It's deliberate.
Games are making small steps in this direction. I can buy the 'collectors edition' of some games, which gets me a tin box and some postcards, but is really a way of me sending extra money to the developer. I can buy the game on release day, or I can wait six months for the price to drop, or even get it second hand or in a bundle. These are good ways to let us get the best of both worlds. Everyone gets to play and the developer gets paid in correlation with how much people want the game.

The logical extension of all this is greater granularity. Rather than just a normal and a collectors edition, shouldn't we go further? The idea of being able to pay for gameplay advantage in an online game is hideous, but some Asian MMOs have done very well by charging players for cosmetic improvements. The idea of 'free game, charge people for hats' is much talked about in industry circles. There’s no reason why this can't be extended in a different way.

Take a game like Call of Duty 4. I loved it, and enjoyed it online and off. I'd have happily paid £50 rather than £30 for it. But some people ONLY wanted it for online play. Some of them might have used voice chat (I don't bother) and maybe some of them could only run it on low-resolution or detail. Why do we all pay the same price? Conversely I hate paying for the campaigns in Company of Heroes. I never play them, just skirmish and online.

It figures that the wealthier gamers have the high end kit, so would it be reasonable for there to be a deluxe version of COD4 with multi-monitor and high resolution support, voice-communication features etc, and a 'lite' version locked at 1024 res, no voice chat and fancy shaders, for say £15? As long as there was an in-game option for you to pay the difference later and upgrade, would this be a good idea? I want to know.

It seems weird to be that when it comes to gaming, there are two prices;, collectors edition or standard, but when it comes to pizza, I have at least 30 options, each with a meticulously calculated price differential. Garlic bread may be £2, but with cheese, I should add £0.50 etc. Right now, the people who won’t pay full price for games either don't play them or pirate them (boo, hiss!). We can complain about this, and say that’s just life, or we can try and find ways to bring them into the market.

Gamer resistance to this issue is patchy. People are happy to pay for hats in a free game, but complain of being 'nickel and dimed' for horse armor in Oblivion. Is there a way to make such a system work? Will gamers see three versions of a game as corporate greed? Or accept that they are being given more choice, and more options. Is there a reason we don't mind paying an extra 50p for cheese, but resent being charged extra for that horse armor?

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