In determining the price for their product/service, many companies just add up all their costs and arbitrarily add a certain amount for profit—and that becomes their selling price. The question is: Is this price giving them the maximum marginal income?
Apple, Inc. is doing very well right now financially. Of course, their iPhone is a big winner. But their Mac computer only has a 7.6 percent market share in the United States as of the second quarter of 2009, and only 3.36 percent worldwide. Dell has a 26.3 percent share and Hewlett-Packard has a 26 percent share. I believe many people would agree that the Mac has better graphics and an operating system superior to that of PCs, such as Dell and HP, which run Microsoft Windows. Then why is their market share so low? I believe it is because they are premium priced. If they dropped their price to match Dell and HP would their shares double or triple?
Conversely, Australia Chardonnay wine was a good seller here in the United States until recently. They kept dropping their price to the point that people began to think it was inferior and consequently, they started losing sales. These two tales are