‘Tis the season for LCD TV’s

Despite the Economic crisis, US citizens aren’t going to stop spending this upcoming Christmas. The sales for electronics are expected to stay the same; if not increase. According to the article; It is expected that the consumers spend an approximate of $1437 on gifts this year, less than last year $1671, nevertheless this year an approximate of 28% of that spending is directed to electronics, greater than last year’s 22%. Electronics have had considerable drops in prices in the last few years. For Example, LCD TV’s, whose prices have been going down considerably, from $858 for a 32-inch unit in September to $399 for the same unit nowadays. But what causes this sudden drop in prices?

Agencies say companies create surpluses (over production of a good or service) to give fair prices to their consumers, making them more attractive and boost sales. The transition from the equilibrium to the surplus is the shown below:

These cheaper prices in TV’s cause rise in the quantity demanded for `complimentary products. These have an inverse relationship; meaning that when the price of a product “A” goes up the quantity demanded of its compliment product “B” goes down and vice versa (ceteris paribus). For Example Blu-Ray players, which are presumed to have better attributes than the usual DVD’s.

Blu-Ray players face the well set competition of DVD players. Blu-Ray players are compliments of the LCD TV’s; therefore an increase in the quantity demanded for this product should occur. Nevertheless the presence of the familiar DVD players slows the sales of the Blu-Ray system, beating them with their cheaper prices and the familiarity they have with the public. Blu-Ray isn’t only expensive but unknown. The problem of the Blu-Ray players is the presence of substitutes, substitute products are products with a direct relation; when the price of product “A” goes up, the quantity demanded for good “B” goes up, since it’s a cheaper alternative.

Graphs for the demand of DVD players vs. Blu-Ray players:

Slow sales on Blu-Ray players may be due to a poor advertisement project on the product, or by greater offers on the DVD’s which outshine the Blu-Ray sets. A solution for the Blu-Ray players might be: better advertisement campaigns, showing the consumers the reasons to buy the new sets or better sale offers through partnerships with LCD TV companies, for example selling away players with the purchase of the already cheap TV sets, this might drive attention and spread the word of the new product, causing possible sales. Another reason is the familiarity of the DVD players. Consumers have a cheaper known option; they’ll dismiss the unknown and more expensive option.

People are expected to spend a lot of money in gifts, and the most attractive seem to be electronics. Over production thanks to the technology available to produce them has caused a devaluation of their real price. TV sets are affordable and durable; saving money on vacations in exchange for a home entertainment set seems to be the most attractive idea. Now companies have played the smart measure and reduced their prices with surpluses, creating attractive price offers leading into a greater amount of sales and greater inventories to sell from. The other electronic companies like DVD producers have the advantage of preference and cheap prices to sell their products, but other products like Blu-Ray players are unsuccessful because of a greater competitor and their short time in the market.