You're 17.
Summer of grade 11.
Just locked down your first job.
Dishwashing at The Keg.
(with the aspiration of one day becoming a busser)
Your first paycheque is only two weeks away.
Finally.
Financial freedom.
Your parents have granted you permission to save or spend your earnings however you choose.
The only catch: make sure you save enough money to cover next year's school supplies.
Well, that should be easy.
You have left over pens, loose leaf, binders, a couple highlighters..
Someone always has a ruler you can borrow so you don't really have to worry about that one.
A quick perusal of your supply checklist confirms you're in good shape..
With one exception..
CALC 100
Required: Graphing Calculator
Hmmmm..
Ok..
That can't be that expensive..
$20?
Maaaybe $30..
Google.
No.
(denial phase)
Life isn't fair.
(anger, bargaining, and mild short term depression phases)
But there is no way you're going into that class without one..
(acceptance phase)
Fast forward to high school graduation.
Your graphing calculator is a distant memory (along with the quadratic formula) and will only join the long list of reluctant purchases required throughout your educational career.
Why does this happen?
It's 2012. How can a basic graphing calculator cost $129.99? More importantly, how can this one cost $229.99?
A closer look into the graphing calculator market reveals some interesting factors that allow it to function against what we understand to be basic economic principal.
1. This market benefits from a lack of functionality
Generally, we understand the relationship between price and functionality to be positively correlated. However, in the case of graphing calculators, additional functions affect the product negatively. For example, a function to send messages to friends prohibits the use of the calculator during the exam. Interestingly, this explains why calculator manufacturers have no fear of MP3 players, cellphones or iPads coming into their arena.
Consider this: the current price of a Apple 8GB 4th Generation iPod Touch is $199.99, with older generations available for much less. If you're somewhere with free wifi (read: anywhere), you can: play Angry Birds, make calls, send messages, email, listen to music, take pictures, take pictures and put them on facebook, take pictures and put them on twitter, take pictures and put them on instagram, take pictures and put them on all your social media sites simultaneously, and graph a function (among countless other capabilities) all with your iPod. With this capacity the market has deemed the iPod to be worth $199.99. The graphing calculator matches the iPod on only one level: graphing. However, given the unique circumstances of standardized testing, the graphing calculator is allowed into exams and the iPod is not.
2. This market is dominated by standardization
In many ways, the graphing calculator is being kept alive by the education system.
The thing about standardization is.. it takes a long time to alter. With a number of different stakeholders all vying for their own incentives, the system itself can become very inefficient. Thousands of students will write SATs this year and the CollegeBoard's sole purpose is to ensure standardization at every level possible. This results in strict monitoring of allowable calculators. If you as a manufacturer can release a product that meets the requirements and capture the market share before a competitor, there is low incentive for competition to enter. With an estimated 80% of the market, Texas Instruments did just that. If the TI-83 looks familiar to you, it's because its design and function has remained relatively unchanged since its release in '96. In this market, lack of innovation is protected by standardization efforts.
3. Students are not buying because they want to, but because they have to
We understand price to be a function of the consumers willingness to pay. That is, at what price does the consumer believe obtaining the good is worth more than their money. We know that this willingness to pay can be further broken down into a number of complex factors: product placement, timing, functionality, convenience, value perception, if The Situation buys it, if The Situation is asked not to buy it, etc. These factors in combination will determine what a consumer purchases, and at what price.
In efficient markets we see consumer power influence not only price points, but quality levels and product offering. There is an interesting effect however, when a consumer is simply required to purchase it. When a suggested model is printed on a checklist, the purchase becomes very low involvement. Also, although the price may be unjustified - it's not high enough to create public outcry.
The Graphing Calculator Paradox is in good company within the education system. With rising student debt garnering media attention, students are beginning to ask questions. Currently, Texas Instruments enjoys 33% margins on the basic technology that is a graphing calculator. Some textbooks are expected to cash in much higher than that.
As business students, do we view this as strategic genius? Or are we working against affordable education?
