When to Wait: When Patience is Rewarded With Lower Prices

Patience, and the ability to wait, can mean lower prices. What situations tend to reward patience?

Patience, and the ability to wait, can mean lower prices. What situations tend to reward patience? And, just as importantly, when do you need to rush in?

You can often save money just by being patient. Take books for example. Not long ago if you wanted to read a new book right away you had to purchase it in hardcover – the most expensive format. Several months later it would be released as a paperback at a much lower price.

The same pricing decline generally applies to ebooks. There aren't hardcovers and paperbacks anymore, but prices still tend to start high and decline over time. We can't pretend that it is the format (hardcover vs paperback) that accounts for the difference, it's clearly the timing. If you want to go first it will cost you more.

Once the publisher has sold to "hardcover" customers (those that place a high value on reading the book right away) at the higher new release price they keep dropping the price to appeal to customers that place less value on the product. They want to sell to everybody, and they'll discount to try and make it happen, but they also want to get as much as each customer is prepared to pay. Time is a great way of streaming customers according to their priorities.

Same thing with movies. The most expensive way to see a movie is in the theater. It probably costs a family of four at least forty dollars to see a film in a first run movie theater.

A month later they can often pay less to see it in a smaller theater. A few months later it moves to optical disk like DVD or Blu-Ray ($15-$25), electronic download like iTunes (under $20) and on-demand/pay-per-view (under $10). From there the film moves to services like Netflix and HBO where the cost is just a tiny part of your monthly fee. Meanwhile the DVDs and Blu-Rays just keep getting cheaper too, eventually ending up in the $5 bin.

The key here is that there is no real limit on supply. More DVD's can always be manufactured. More ebooks can be downloaded. With no real constraint on supply prices will generally go down over time, and you can save money by waiting.

Retailers work hard to convince you otherwise. New release DVDs usually show an inflated "regular" price, and then a discounted limited-time special price. This intended to convince you that the price is going to go up.

That rarely ever happens in the medium term, and it never happens in the long term. Wander out of the new release section and you'll see that those regular prices are almost never charged. The discounted "special" price is almost certainly the highest price that will ever be charged for the DVD as it begins a steady journey to the discount bin.