Why Are TVs So Cheap?

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Three reasons: (1) You know they'll keep getting cheaper; (2) Electronics manufacturers are getting more efficient ; (3) All TVs are (basically) alike.

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Reuters

At a time when it feels like nothing is getting cheaper, you can take solace in knowing there is a nearly essential product out there, which you might use every day, whose real price has fallen more than 96% in the last 70 years.

It's your TV.

In today's prices, a TV cost nearly $10,000 in 1939 when it was only 12-inches across and looked like a mini-fridge made out of mahogany. Today, you can find an infinitely superior version -- flatter, clearer, more colorful, nearly three times the size -- for about $300, writes Brent Cox in a wonderful post at The Awl.

Television's incredible shrinking price tag isn't just a historical trend. If you want a up-and-close look, just check out your local consumer electronics store, where retailers are participating in the annual tradition of slashing TV prices, waiting a week, and then slashing them some more. The fire-sale is fantastic news for consumers; less so for manufacturers and merchants who are already selling at hair-thin margins, as Andrew Martin explains for the New York Times. Why are high-tech televisions getting so cheap year-after-year (and, in December, week-after-week)? Three answers:

1. Because you didn't buy a TV last week

Holiday shopping has a strange effect on retailers and buyers. Rather than buy a TV when you want to buy a TV, you'll wait all year until Black Friday to see how much retailers cut prices. Then, if you're like millions of Americans, you'll wait another month to see if they cut prices even further. Nice job, savvy shopper! Also, you're creating a deflationary crisis for TV merchants.

In a classic deflation crisis, consumers expect prices to fall, so they hold off spending, which weakens the economy, which results in falling prices. This creates a self-fulfilling loop where expectations of falling prices ends with lower prices. Something like that happens every December for electronics. We wait until Black Friday to start shopping for Christmas electronics, and often we keep waiting for last-minute-clearance-super-sales, anticipating prices to fall as stores have to clear out their inventory.

"People used to pay additional to get a Sony Trinitron," Riddhi Patel, director of television systems at IHS iSuppli, told Andrew Martin of the New York Times. "But the industry has trained the consumer that any time there is a new technology, if they wait six months the price will come down."

If you prefer your price analysis served in simple supply vs. demand terms: TV prices kept falling past December 25th because demand isn't strong enough to support a higher price come December 24th.

2. Because manufacturers have become really efficient

This is a familiar storyline in the electronics world. Whizbang product debuts. Early adopters clamor for it. Rich people buy it. Other companies replicate it. Supply chains improve. Costs plummet. So do prices. Late adopters buy more. Profit margins narrow. Manufacturers find that the cash-cow has all but dried up.

This narrative played out with DVD players. It's happening with flat-screen TVs, too. Manufacturers have found more and more efficient display manufacturing technologies, fierce competition has driven down prices. In 2004, the average 27-inch TV cost about $400. Today, the average 38-inch TV costs ... about $400.

From the New York Times story on falling TV prices in New York City: "Televisions have become so inexpensive that the profits have largely been squeezed out of them, a result of a huge increase in manufacturing capacity that has led to an oversupply and continued downward pressure on prices from low-cost manufacturers and online retailers." 

3. Because TVs are boringly similar

For many families, the "right" TV comes down to just two factors: size and picture quality. Most of the best TV manufacturers offer similarly large TVs with similarly awesome clarity, which means there aren't a lot of differentiating features that a producer can upsell.

This makes televisions different from, say, a tablet. You can compare the iPad and the BlackBerry Playbook across many factors: screen quality, screen size, speed, connection, touch responsiveness, and app store. The iPad is really, really different from the BlackBerry PlayBook. A Sony 40-inch flatscreen TV is really, really similar to a Panasonic. This makes it difficult to build what analysts call "brand premium." You might pay extra for an Apple product because you have a clear sense of what Apple offers above and beyond other similarly-priced products. Televisions don't have the same differentiation. As a result, TV prices tend to converge more than other electronics. Given the behavior of consumers, and the efficiency gains of manufacturers, the direction of that convergence is down.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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