Consumer Surplus

The amount a consumer would have paid for a product above the price they actually paid.

If you want to make money off of your games you need to understand consumer surplus. This is the amount of additional money a customer would have paid for a product. Let’s say you release your game for $14.99. Bob, who’s wishlisted your game for a year before release, wants to buy it. You release during the Steam Winter sale. You’re worried about sales since your marketing efforts haven’t been too successful. So you mark your game down to $9.99 to try to encourage more sales. Bob buys your game for $9.99, but he was fully willing to pay $14.99. Bob’s consumer surplus is $5.00. That amount is also an opportunity cost for you. You lost out on an additional $5 from Bob, and $5 from other people like Bob, by putting your game on sale. Maybe you can make up this loss by selling more volume, but there is a reason why price skimming is the pricing strategy used by every large developer.

In my experience, most devs under-price their titles and place them on sale way too early in the life-cycle. To maximize your revenue, you need to minimize consumer surplus. Economics offers many strategies to do this but almost all of them are unworkable for games. The winning strategy is price skimming. Learn it. Love it. Do it.

Undertale