Netflix (as it is all streaming and not really "renting") isn't the greatest example. For some things that I can't stream on Netflix, I often rent from the iTunes store. The cost is much less than a purchase from the same store. The only difference is the understanding that the digital media I'm renting will no longer function after a well-understood period of time. I'm an adult, I can make informed consent to that arrangement.
I wouldn't be happy with this being the only media option, but I like having that as one of the many options in the media ecosystem.
I see no valid reason why the expected price should be higher in the case of a purchase for digital data. As was discussed here https://news.ycombinator.com/item?id=6496579 the main reason why rent price is lower for physical goods, is because it's based on reusability of the object. The reason to limit the time of using it is pretty straightforward as well - to allow the next user gain an access to the object.
All these reasons have completely no application to digital goods. So what's the point in renting them, or making the purchase price any higher? I see none, except someone's potential greed may be.
You can say, that renting an object more often produces more profit, in case when one time fee is charged for each renting, so that's the reason for the time limit. But then again, this is only valid when the resource is limited (physical object), and each user prevents others from renting it. In case of the digitial data which costs nothing to duplicate, the resource is unlimited, so this reason doesn't apply. And if we are talking about the same user renting it again and again, then what's the point? Purchase makes more sense again.
The bottom line, I think that renting of digital goods is a pointless idea. And since as we see it causes DRM in result - it's a bad idea too.
Price of goods, especially digital goods, aren't based the cost of those goods. You don't expect to pay less for a low-budget indie film than a 300 million dollar blockbuster.
The price of something is instead based exclusively on willingness to pay for it. The market has proven that people are willing to pay more for digital goods that they own and can consume over and over over digital goods that they have a short-term access to.
> Price of goods, especially digital goods, aren't based the cost of those goods. The price of something is instead based exclusively on willingness to pay for it.
There is a lot of misconception surrounding this principle.
To oversimplify, in the short term, price is determined by the interactions of supply and willingness to pay.
However, in the long term (in a competitive market), new suppliers will enter the market if existing suppliers are making supernormal profits, and existing suppliers will exit if they are making subnormal profits.
This means that, in the long run, price will converge to the average total cost of production, in a competitive market.
Of course, Netflix is not operating in a perfectly competitive market, but that distorts the price in a different way. It's not quite technically correct to say that price is based exclusively on willingness to pay for it; even in noncompetitive markets (true monopolies, as opposed to monopolistic competition), one can just as easily say that price is determined by the quantity that the monopolist wishes to sell.
Prices are based on cost at least in part. But with logic similar to yours, ISPs for example explain why they charge crazy prices for normal quality plans, and charge "normal" prices for junk ones. "Willingness to pay" when there aren't better alternatives is quite a slippery basis for any conclusions.
Anyway, ask anyone if they prefer to buy and not to overpay, rather than rent. Just because someone devised an idea of renting digital goods for no reason except their own greed is not a reason to say that it's a good idea. It gives no benefits for the user and can be used as an excuse to drive prices up on purchases as you said yourself.
That's a fundamental misunderstanding of basic economics. The market always sets the price. If the price that is set by the market is lower than the cost to produce that item, then you just don't have a viable product to sell.
The basic real-world reason that renting of digital media exists is because some people are willing to pay more for the added value of being able to watch it over and over while some people aren't.
This is rather devoid of meaning. What is the market if not a label we use to reference the extremely complex interactions of individuals with varying degrees of information and rationality in an adversarial system? Of course the actual price to produce a product influences what people are willing to pay for it! This is why companies fight so hard to keep that information secret. This is why I refuse to buy a typical cell phone plan that charges absurd amounts for data and text and stick to prepaid. I influence the market because of my knowledge of how much it actually costs to send a text. The market absolutely reacts to the actual costs of products.
Not a defence of DRM or overcharging, and more of a statement on how pricing works in real-life.
Very few people have the time and knowledge to do a supply chain or BOM analysis before they buy anything. Hence, there is little incentive for companies to price products based on cost. Cost is a factor only when analyzing profits.
Hence, cost is usually whatever the market is willing to pay. Saying it is unethical or wrong does not change reality.
That's why stronger competition usually makes it more fair, since competitors can lower prices while still being profitable. Overcharging is usually not an indication of "willingness to pay", but an indication that the market in unhealthy (no competition, monopoly and so on).
Agree with you. In general, overcharging does mean the market is not fair.
However, even in the presence of competition, cost is not the major factor in pricing :). Competition may drive prices down but does not eliminate greed.
eg: In India (where I live), mobile services cost a fraction of what it typically costs in US/Canada. Even here, texts are priced at 5x what it costs the operator :(.
Netflix (as it is all streaming and not really "renting") isn't the greatest example. For some things that I can't stream on Netflix, I often rent from the iTunes store. The cost is much less than a purchase from the same store. The only difference is the understanding that the digital media I'm renting will no longer function after a well-understood period of time. I'm an adult, I can make informed consent to that arrangement.
I wouldn't be happy with this being the only media option, but I like having that as one of the many options in the media ecosystem.