How Minimum Pricing Keeps You Paying Full Price

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jeff

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Edited By jeff
C.R.E.A.M.
C.R.E.A.M.
Ever wondered why you never see the shiny new toys and games for anything less than their full retail price, even in a season where some stores are doing anything they can just to get consumers into their stores?

The Wall Street Journal has the answer you've been looking for with an interesting article on the practice of manufacturers--like Activision and MTV Games with Guitar Hero World Tour and Rock Band 2, respectively--forcing retailers to adhere to set prices for their goods under penalty of reducing advertising subsidies or simply withholding product altogether.

This practice is what I used to think led to the whole "OUR PRICES ARE SO INSANE THAT WE CAN'T TELL YOU WHAT THEY ARE IN THIS AD" phenomenon, usually reserved for car stereo super sales and crap like that. But this practice was apparently re-enabled by a Supreme Court decision from last year designed to prevent a brand's image from being tarnished by severe discounts. That's a real thing, by the way, even though I know that might sound crazy to some of you. When I was in a band, for example, we sold more CDs at $10 than we did at $5, because the perception of the product's quality went up along with its price. We then turned around and spent that money on twice as many bottles of St. Ides Special Brew. Street thinkers call it "Tight Math."

Some people call this price fixing, and opponents of the practice are hoping to get this issue in front of Congress next year. Be sure to check out WSJ's article for the full story.
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jeff

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#1  Edited By jeff
C.R.E.A.M.
C.R.E.A.M.
Ever wondered why you never see the shiny new toys and games for anything less than their full retail price, even in a season where some stores are doing anything they can just to get consumers into their stores?

The Wall Street Journal has the answer you've been looking for with an interesting article on the practice of manufacturers--like Activision and MTV Games with Guitar Hero World Tour and Rock Band 2, respectively--forcing retailers to adhere to set prices for their goods under penalty of reducing advertising subsidies or simply withholding product altogether.

This practice is what I used to think led to the whole "OUR PRICES ARE SO INSANE THAT WE CAN'T TELL YOU WHAT THEY ARE IN THIS AD" phenomenon, usually reserved for car stereo super sales and crap like that. But this practice was apparently re-enabled by a Supreme Court decision from last year designed to prevent a brand's image from being tarnished by severe discounts. That's a real thing, by the way, even though I know that might sound crazy to some of you. When I was in a band, for example, we sold more CDs at $10 than we did at $5, because the perception of the product's quality went up along with its price. We then turned around and spent that money on twice as many bottles of St. Ides Special Brew. Street thinkers call it "Tight Math."

Some people call this price fixing, and opponents of the practice are hoping to get this issue in front of Congress next year. Be sure to check out WSJ's article for the full story.
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deactivated-5c5cdba6e0b96

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It makes sense in a way, It`s kind of like buying a product of China, you know it sucks but it`s alot cheaper, and you know you should go for the american-made product which will ensure quality.
but for this case it`s a matter of your mind telling you the price meens quality and companies know they can jack up prices to make you think your getting more or better quality.

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Rowr

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#3  Edited By Rowr

I read a theory last week proposing that sony was using the same strategy with the playstation3.

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dQuarters

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#4  Edited By dQuarters

Perpetuated by the "You get what you pay for" line, which should be "You get what you work for".

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LiquidPrince

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#5  Edited By LiquidPrince

Interesting. Higher prices do make thing seem like they're higher quality, even if they really aren't.

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Hamst3r

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#6  Edited By Hamst3r
"we sold more CDs at $10 than we did at $5, because the perception of the product's quality went up along with its price."

i.e., people are fucking retarded.  Some of the absolute best music out there is free! This also applies to mods (Black Mesa, Minerva and Dystopia for HL2. Team Fortress for Quake, ), indie games (Trackmania Nations, rRootage, Within a Deep Forest.) and software (Firefox, Filezilla, Blender, OpenOffice, Linux.).

The list goes on. Free stuff is awesome! :)
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AspiringAndy

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#7  Edited By AspiringAndy

I doubt Sony would do that. They were losing enough money on consoles as it was.
Wii sales ftw.

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StillAThreat

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#8  Edited By StillAThreat

Admittedly, I don't really care about this article.  I do however, want to see more mentions of Saint Ide's Special Brew.  Pick your poison: Pina Colada or Mixed Berry?

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Stevokenevo

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#9  Edited By Stevokenevo

It definately makes sense as buying a something at budget price can make you think youre getting a budget product.  I still wait for price drops for most games (on pc) and I still hate the fact that Call of Duty 4 is £35 which ironically is dearer than Call of Duty WaW @ £30.

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BiffMcBlumpkin

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#10  Edited By BiffMcBlumpkin
dQuarters said:
"Perpetuated by the "You get what you pay for" line, which should be "You get what you work for"."

Then I guess we should all have less than we have... because fuck, I don't do much. I feel like I don't.
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swampwalk

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#11  Edited By swampwalk

+5 points for mention of the crooked I

Jeff is straight hood

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Rowr

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#13  Edited By Rowr
Levio91 said:
"So how can this be fixed?"
Dont buy anything?
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StaticFalconar

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#14  Edited By StaticFalconar

*cough Gamefly /*Cough

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RedNinja

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#15  Edited By RedNinja

I don't see what the fuss is about...

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MaddProdigy

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#16  Edited By MaddProdigy

I know myself to be one of those ppl sadly. If i see two games sitting next to each other on the shelf, both have identical gameplay, and are pretty much the same, but one is 10 bucks more, maybe even has a shinier box, i'd buy that one. just gives you that warm fuzzy feeling of owning something new and awsomer than all the losers who saved those 10 moneyz

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lebkin

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#17  Edited By lebkin

This makes a lot of sense.  When games drop suddenly in price, what is the first assumption of all gamers?  Well that game must not be doing well, and they are trying to boost sales.  If a game isn't selling well, that usually means it isn't  good and gamers avoid it.  Halo 3 is still $60 bucks, and people still buy it (it is ranked #53 in video games on Amazon).  Because it is good and we see the value in it.  If you know nothing about a game, a lower price on a relatively new game can lead to unfair assumptions.

This kind of phenomenon is why there are lots of gift cards given out with new games, rather than new games just being on sale.  The price has to be the same, to create the same perception of value.  The gift cards are just seen as a bonus, instead of being the discount that they actually are.

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SlimDogg

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#18  Edited By SlimDogg

If the price point is below the 30 dollar mark. Then i def feel like i am buying a budget game.  Not when $60 games fall below the $30 dollar mark though.

St.Ides Special Brew...Thug Passion !  Oh yeah those where the days.

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Derios

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#19  Edited By Derios

get the money dolla dolla bills y'all.

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cultofweaver

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#20  Edited By cultofweaver

The UK has gone in totally the opposite direction here as in the last month or so the prices of games are just tumbling. I picked up Far Cry 2 and Fallout 3 for £20 each today, Mirror's Edge was £15, Tomb Raider Underworld £20, Fifa 09 £25...all of these, apart from Mirror's Edge, are big selling games many of them still on the UK All Formats Chart. It's got to the point now where if you pay anywhere near full price for a game in the UK then you're doing it wrong. Even Gears 2 when it was released was reduced to £35, at a midnight opening full of people queueing for an hour or more to buy that one game specifically.

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Lepuke

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#21  Edited By Lepuke

Ah St. Ides,that beer used to be my 40oz of choice whenever I declared a "cheap beer night".
There was only one store around here that even carried it, but they haven't stocked it for over 4 years now.
Did the company go under or do they just not distribute here now... I suppose I should just look.

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Media_Master

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#22  Edited By Media_Master

interesting

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giyanks22

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#23  Edited By giyanks22

Weird...sucks for us.

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Jayzilla

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#24  Edited By Jayzilla

just run an ad that says, "Inexpensive" That entails that the product is, in fact, quality, but does not cost as much as it does at other retailers. I like to shop at certain stores, and not others because of certain retail practices. I won't buy anything at the blue and yellow superstore, because of said retail practices.

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BawlZINmotion

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#25  Edited By BawlZINmotion

I guess price preception has never been an issue for me because I like to read. In fact I enjoy reading so much I figure out what I'm going to buy before I leave my apartment. More importantly I determine what not to buy and where good deals can be had. Plus this idea should be fired out the window on fact Xbox 360 is constantly outselling the higher priced PS3, even though the 360 image is tarnished(?) by cheap and broken hardware. Then there is the Wii, technically inferior and more expensive, but sells loads more than both.

One has to think who has more power here, a company like Activision or the retailers it sells product through? Does anyone honestly think that Activision would damage their sales relationship with mega-chains like Wal-Mart, Best Buy or Gamestop because said outlets wanted to sell titles for less than the MSRP? I doubt it. Unless of course they sweeten the pot by offering exclusives and the like, but if push came to shove I think game company threats are ultimately hollow.

And quite frankly in this economic climate and with the all the ball dropping that has happened on Wall Street, the Journal can fuck right off with their predictions, explanations and advice.

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FotherMucker

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#26  Edited By FotherMucker

I hate the corprate world.

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Brackynews

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#27  Edited By Brackynews

@cultofweaver:
Interesting, but the currency difference must be bringing in a nearly equivalent amount of wholesale revenue for the publisher.  In the UK at least the only extra development cost is conversion to PAL.  And they may be good Christmas loss leaders for the store.  If you don't already have a second controller you're far more likely to pick one up alongside an affordable copy of Gears 2.  Here in Canada I watched and waited almost a year to find a black 360 controller for $15 less than full price.

Companies take the loss on hardware.  Stores take the loss on games.  Accessories make a lot of money for everybody.

Opposite practices include our friends at Amazon. I've seen them jack up "regular" prices to $75 for a regular game, just so they can stick a fat 33% Off on their page.  I'm like... no.  Seems to be less common these days.  I kinda doubt there's any law on the books against fake-out jacking up.  Probably put Ron Popiel, and those people selling late-night knife kits out of business.



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DavidSnakes

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#28  Edited By DavidSnakes

I love it when Jeff writes about evil corporations and smart sounding things

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Proteus1202

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#29  Edited By Proteus1202

Yeah......price perceived quality, the more expensive it is, the better quality people believe it is....nonetheless, I still view it as a form of price fixing, especially with the similarities to the Reebok case of the early 90s.

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citizenkane

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#30  Edited By citizenkane

I'll read the article later today.  Sounds interesting.

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vaiz

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#31  Edited By vaiz

Mo money Mo problems. Fight the power.

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Alex_V

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#32  Edited By Alex_V

cultofweaver - I think that's more a sign that retail in the UK is in a perilous state. Zavvi and Woolworths have gone under, and other games retailers must be really feeling the pinch as well.

If I understand this correctly, the agreement merely states that stores aren't allowed to advertise cheap offers for certain products. Which is fair enough in my opinion - once word is out that a product is cheap at one store, why pay full price at another? I don't see that this is really related to price fixing as such, and I think the gaming industry is heavily dependent on pricing strategies to survive - they are tryin to protect the control they have to sell products across the board at the price that they choose. And I think they should have that right.

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#33  Edited By TheHBK

I can see both points.  If you sell a game like Banjo at 40 to begin with, then its at 25 on amazon only a few weeks after release, it makes anyone wonder if this game sucks balls.  Those that know it doesnt are those who played it or read a review of it.  The most ridiculous price cut I have seen, ever, was for Brothers in Arms.  Only a couple weeks after it was out last november, it was already being sold for 30 bucks, half price.  Then for black firday, it was only $17.  I didnt really look for reviews and my initial thought was that it really sucked, but also thought it could not be so terrible and that it just wasnt selling well.  for games like Guitar Hero and Rock Band, people will be looking for deals on this stuff.  Their brand name will not go down because people already have word of mouth.
But it is bullshit that a retailer cant lower their prices if they want to.  They have competition with other games, so I would say this is price fixing and just stifles competition between retailers, also it is not bad because if the product would sell well enough at full price, then there is no reason to lower the price.  But maybe it works to get consumers in the store.  It is just a weird conundrum.  I would say fuck it and let them lower the price.

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AndrewGaspar

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#34  Edited By AndrewGaspar

This is to keep prices fair. They don't want one retailer totally dropping the bomb and selling a certain game $10 to $20 less than the competitors. This will then force other retailers to lower the prices. Because of this, retailers will buy less product because they aren't making as much of a profit on the product, forcing the publishers to sell the software to the retailers for the reduced price, directly impacting the budget of the games being produced.

And I know none of you want to play crappy games, right?

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exfate

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#35  Edited By exfate

MSRP (or as we call it in the UK, RRP) has no effect in the UK anymore. It doesn't work in advertising, and following the list price is poor business practice. Over the past few years the UK has gotten obsessive with supermarket style competetive pricing - due in part to supermarkets encroaching on other retailer's business. It's not just savvy consumers who are out for bargains and discounts anymore, it's literally everyone. The perception of quality based on price isn't very strong for entertianment media any more. It still exists for other goods, such as clothes and electronics, but less and less people seem to actually care. It's all about living cheap and quantity over quality these days anyway. The only reason to use RRP in advertising is to point out how your price is lower than it, but retailers have to be careful, because you can't advertise for example 30% off RRP if it's 30% off or better at too many other places. To have ads that feature the RRP at all is pretty much like saying "go somewhere else." So yea, it's worthless for ads, and unrealistic in the market.

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WilliamRLBaker

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#36  Edited By WilliamRLBaker
Bucketdeth said:
"It makes sense in a way, It`s kind of like buying a product of China, you know it sucks but it`s alot cheaper, and you know you should go for the american-made product which will ensure quality.
but for this case it`s a matter of your mind telling you the price meens quality and companies know they can jack up prices to make you think your getting more or better quality."
Why does it suck? let alone that china is a industrial super power now nearly 40% or higher products in the world are made by them their practices and such have increased vastly over the years so as to make more money for its citizens.

Wal-mart all those products made in china? they work pretty good. Just because its made in china or a foreign country does not mean it sux.
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GIVEMEREPLAY

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#37  Edited By GIVEMEREPLAY

Jeff- I burned the best tracks from Midnight Brown on a CD and have been listening it constantly in my car for two or three weeks. I thank you for your solid and enjoyable beats. Merry Christmas!

Quote: "This is to keep prices fair. They don't want one retailer totally dropping the bomb and selling a certain game $10 to $20 less than the competitors. This will then force other retailers to lower the prices. Because of this, retailers will buy less product because they aren't making as much of a profit on the product, forcing the publishers to sell the software to the retailers for the reduced price, directly impacting the budget of the games being produced."

Woah there comrade, what happened to free market competition? Places that lower their prices insanely make less money per game sold. Places that price their games too highly make more money per game, but sell less games. This creates competition, as places try to vie for consumer dollars by lowering cost or increasing consumer satisfaction (in the buying experience, via warranties, building brand loyalty or customer support). I don't know what world you live in where one "spoil sport" who decides to slash prices ruins it for everyone, but it's not the world I live in. Remember that game companies don't have to sell their games to everyone. If Gamestop slashes prices to only 10% over wholesale (AHAHAHA... oh wow), then Ubisoft and Microsoft don't have to sell their titles there anymore. Again, FREE MARKETS. Enough of your price fixing crap.

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wardcleaver

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#38  Edited By wardcleaver
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wardcleaver

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#39  Edited By wardcleaver

Also, minimum pricing has the effect of "leveling the playing field".  You can imagine that bigger retailers like Wal-Mart, Best  Buy, and Target could afford to sell some games for lower prices by buying in bulk, or using their huge customer base as leverage to get lower prices (i.e. a bigger cut of the pie) from publishers.   

Of course, someone would scream that they were "undercutting" the smaller game retailers, and there would be another lawsuit.  No matter what you do, you can't win.

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TwoOneFive

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#40  Edited By TwoOneFive

wow. the gaming audience is a lot smarter though, gamers know what games are good and worth buying and what are not, no matter what the price. if madden was only $20 , you don't think the sales would actually rise??

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thedeusmachine

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#41  Edited By thedeusmachine

Uh oh, my band gave out free EPs at a couple of our concerts.  I wonder what that says about our quality.

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JohnDeadly

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#42  Edited By JohnDeadly

Ultimately we control the price, by not buying the damn game. The economy is really bad right now, and eventually these greedy game makers will have to find a lower price point. I personally  refuse to pay $59.99 for a game. I'm more than willing to wait 2 months and get it on ebay for $40, But interestingly enough worstbuy has all of the EAsports 09 games on sale for 37.99 until the 27th. I think i may buy NHL 09. 

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sdauz

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#43  Edited By sdauz

down here Australia thats illegal i think....dam high school business studies!

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mackgyver

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#44  Edited By mackgyver

Bottom line is that as long as game companies run off people's misconception that higher priced games are of higher quality and lower priced games are of lower quality, they can jack up the prices with that excuse and people will unfortunately suck on it. Another user here said it right; there are great freeware going around and they are of higher quality than some of the retail stuff.

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Brontes_Muse

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#45  Edited By Brontes_Muse

I feel Minimum Advertised Price protects retailers, and the image of a brand.   It's nothing new.  That supreme court case was not last year also,  it was in 1968.  Recently on june 28th, 2007 ruled that this law may be interpreted under the "rule of reason."  Meaning that it really can't be upheld in the court of law, but the manufacturer may punish the retailer their own way.  Like Not getting day and date releases, suspending advertising allowances and warranty support.  

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fluxbit

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#46  Edited By fluxbit
I find the arguments for this practice interesting. And by interesting I mean protectionist and cowardly.

Argument 1: protection against online stores. Fail: If you take away price as a differentiator I will *always* choose the online store.
Argument 2: protection of mark-ups to cover costs. Fail: If you can't make money on it, don't sell it.
Argument 3: level playing field. Fail: Again, if there's no difference, why would I choose anything but convenience? Also, price-fixing isn't cool.
Argument 4: protection of integrity and quality. Fail: The company has bigger problems if retail price controls the company's integrity.
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interstate78

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#47  Edited By interstate78

I'm  sorry guys but this story is a crock of bull. How do I know that? I worked as buyer for two different game retail stores for years.

Well first of all, games have a profit margin of 5-15%

Secondly, if there's an MSRP, thank god that way independent retailers can survive and not be crushed under the buying power of Best Buy / Gamestop / Wal-Mart

if you want numbers, a game that sells for 59.99 will be sold from the distributor to the retailer between 50-57$

You pay that much for games because it corresponds with the prices distributors and retailers pay for them themselves.

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Boiglenoight

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#48  Edited By Boiglenoight

For the past few years, with the rise in game prices and cost of living, I've found myself waiting for games to go on sale,  or drop in price over time due to discontinued stock or Greatest Hits style pricing.  With the economy headed for the stinker, I'm only more committed to this purchasing behavior.

In my case, game companies can insist on minimum pricing as much as they'd like.  Paying over $50 for entertainment that is anything less than Game of the Year material makes no sense to me anyway, much less in light of the need to save money during uncertain times.

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GIVEMEREPLAY

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#49  Edited By GIVEMEREPLAY

"Secondly, if there's an MSRP, thank god that way independent retailers can survive and not be crushed under the buying power of Best Buy / Gamestop / Wal-Mart"

Remind me why I should pay more for games so that non-existent mom and pop game shops can thrive?

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oldschool

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#50  Edited By oldschool

In Australia that practice is EXTREMELY illegal and many a LARGE corporation has been prosecuted for it. In my line of work I must be taken through a training session on the Trades Practices Act every year. The only you thing can tell a retailer is that a price you suggest is recommended. If you threaten a retailer in any way to adhere to your price demand, it will only end badly. Not only will the company pay, but so will the individual who said it, to the tune of $500,000.

I am really surprised that the home of capitalism would have any law that damaged the consumer, but then I remember that your government is actually run by big business (they even write the legislation now, saves time).