An Economics Lesson Through Antivirus Software

Last night, every PC user's worst nightmare had almost become my reality: I thought I had a computer virus. One of the components from my Symantec/Norton 360 antivirus software suddenly stopped working. Every time I clicked the "fix" button to turn it back on, it didn't help. So I called Symantec tech support, who eventually helped me to fix the problem and also reinforced a lesson in economics.

It turns out the business side of Symantec knows what they're doing. They try to increase their profit by capturing more of the demand curve. They do this by incessantly (three times) trying to get you to pay $69.99 to talk to a higher-level analyst who will take control of your computer and fix the problem for you.

I balked. Eventually, they said that, since this was my first time calling, they would waive the fee let the higher-level analyst do it. He ended up reinstalling my antivirus software; I didn't have a virus.

This might seem like a strange way to do business, but it's quite good economics. Symantec is essentially trying to squeeze an extra $69.99 out of every consumer willing to pay.

In one of the first lectures of Econ 101, students usually learn that the market for any product faces a demand curve. That demand curve basically explains what all consumers are willing to pay for your product. Normally, demand curves slope downward, as some people are willing to pay less, while others are willing to pay more. So the lower the price, the more consumers will buy. Firms must choose a price. Symantec chose two.

Here's an example to explain, based on this experience:

Let's say the red line is the demand curve that Symantec sees for my particular antivirus software product (my interpretation is mostly fictional). They've chosen to charge price P, indicated by the blue line of $70 for the software. (I don't remember how much I actually paid, so I am just assuming it was around $70.) So everyone willing to pay at least $70 for the software buys it.

That does not include the computer science PhD. He's only willing to pay $20, because he's so smart, he can write better software in the time it takes him to earn $20.

Then you can see me at $80. I was not willing to pay more than $80 that for the virus software. That's why, when the representative tried to get me to pay an additional $70, I didn't go for it. That would mean the software cost me $140 total. I could just restore my system in an amount of time it takes me to make less than $10.

What about the plastic surgeon and Warren Buffet? They are willing to pay that $70, because they have significantly higher incomes than I do, and presumably are not as computer savvy.

But why did Symantec bother performing the service for free? Because if they didn't, they know that I might think this computer software wasn't worth $70 after all, and might not renew it in the future. That would move me further down the demand curve, as my expectations would have changed.

So instead of just obtaining the profit based on anyone willing to pay $70 for their services, they obtain the profit on anyone willing to pay $70 or more than $140 for their software. That's kind of annoying for us consumers, but more lucrative for Symantec.