Why prices fall

hdmiSome products typically get more expensive over time (think food, college tuition, healthcare). Other products exhibit falling prices. Technology markets often exhibit declining prices (and often improving quality). Think about that smartphone in your pocket — in real terms (after inflation) an iPhone is cheaper today than five years ago. Plus, it offers significantly more benefit (more computing power, more apps, more services, etc.).

Competition often fuels attention to price. In tech markets, one company fueling rapidly lower prices is Monoprice. I first became aware of Monoprice after reading that there was little technical performance difference among HDMI cables (those cables that connect your TV to your DVD player or cable box). So one didn’t have to pay $50 for a Monster cable but could pay less than $4 for a Monoprice cable. For more details, I encourage you to listen (or download the transcript) to the Planet Money podcast “How Stuff Gets Cheaper” (November 28, 2014). It includes some interviews with Monoprice managers.

The Monoprice example could be leveraged into a class discussion of how a competitor of Monoprice’s should react. What can Monster do? What can Apple do when Monoprice’s CrystalPro, which sells for as much as half as much as the $1000 Apple Cinema display? The Apple model has more features, but both of these examples point to the power of a brand like Monster and Apple. Of course the Monster brand was not as strong and they have consequently lost a lot of share in the cable market. Is Apple’s display Monoprice’s next victim?

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