Firms that make game systems like Playstation and Nintendo typically charge a price close to average cost on the game system itself, and do not change that price even when the systems are scarce or demand increases

Why might this be a profit-maximizing strategy?

These firms are selling two products, the systems and the games. These are complementary products. If they increase the price of the systems, they reduce the demand for games (and games are repeat purchases rather than one-time purchases). Additionally, the system is the "hook," or the loss leader that draws customers in. Once you have the system, the switching cost of moving to another system is significant. Thus the systems are cheap, and the games are expensive.

Economics

You might also like to view...

Why do professional basketball players earn more than police officers? Illustrate this situation graphically

What will be an ideal response?

Economics

A technology may be considered inappropriate if it

a. uses a lot of capital b. produces a product that few people want c. has a capital-labor ratio that exceeds the rental-wage ratio d. has a capital-labor ratio less than the rental-wage ratio e. none of the above

Economics