For the 107th time – Price is NOT based on cost!

Hat tip to my buddy Jason for sending this along to me.

This graph originally posted on blog and reposted on The Consumerist and others, once again demonstrates that price is not based on cost. Interestingly enough, most of the comments are railing against Hewlett Packard. Give me a break! You basically get the printer for free and HP recovers the money by charging I higher price for the ink.

One a side note, this graph also shows why it will so hard to get the developing world to shift away from fossil fuels with crude oil being less expensive than bottled water.


  1. Alternatively, it shows just how hard it will be to get developing countries to start drinking bottled water!

    One thing to remember is that standard economic theory shows that in a competitive market price will be driven down to cost.

    This is why it’s so important for knowledge firms (and others) to distinguish their service, lift themselves out of the commodity bracket and therefore be able to price by value instead of cost. HP is good at that; most accountancy and law firms are not.

    Economists do have a name for this too: “monopolistic competition”. Not a very PR-friendly label, but it pretty much summarises the business model a firm has to follow if it’s going to be and stay profitable.

  2. @Leigh – I would insert “perfectly” before “competitive market,” but that is a minor point.

    The practice is also called using a lost leader. Gillette has sold razor handles at a loss for years in order to make it up on the blades, same thing here.

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