Interesting article here, which claims that printer ink is the equivalent of $8,000 per gallon, which makes petrol look cheap. Printer Ink is expensive – $8,000 per gallon.
Reasons Printer Ink is So Expensive?
1. Printers are sold cheaply. The business model of many printer companies is to sell printers at a low cost, and then, with a captive customer, sell the compatible ink cartridge at a high profit margin. The printer acts almost as a loss leader for the profitable aspect of business – selling ink and refills.
When a customer is buying a printer, the most visible cost is the cost of the printer. If you see one printer for $50, this will be much more attractive than a printer for $200. Many first time consumers may only give a small attention to the cost of printer ink – and they may not calculate how much ink they will buy over a lifetime. Therefore, companies who sell cheap printers are likely to sell more printers and get these customers and captive market for buying compatible cartridges. Even if a customer later regrets the price of ink cartridges, he is unlikely to buy a new printer just because the ink is so expensive.
2. Monopoly power in selling compatible ink. When a firm has sold a printer, it has a degree of monopoly power in selling ink cartridges. An Epsom printer may only work with Epsom compatible cartridges, therefore there is no effective competition to bring down the price of cartridges. The firm can set a price where marginal cost equals marginal revenue and maximise profits like a monopolist. In theory, you can buy compatible ink cartridges, but printer firms make it difficult by putting a chip in the printer and ink cartridge to prevent this alternative competition.
3. Vertical Restraints – Big printing companies like Hewlett Packard, allegedly, have been trying to prevent other 3rd party firms from selling compatible ink. This is essential to maintain their monopoly power. To prevent other firms selling ink cheaply big printer firms can use:
- Technology – electronic chips with key codes make it difficult for other firms to provide replacements.
- Deals with big shops. It has been alleged that big printer companies have sought to limit the sale of compatible cartridges by retailers.
An element of price skimming. There is an element of price skimming with firms charging high price to those customers with price inelastic demand and who might buy the branded cartridge and not worry about the price. It might also be taking advantage of customers who are unaware that it is possible to get compatable cartridges.
Problems for printer companies
- If the price of ink is very high, then it creates an incentive for consumers and other firms to find ways around it. For example, in Oxford there is a specialist shop in refilling cartridges. It doesn’t worry if cartridges require a compatible micro-chip. The firm gets around it by injecting ink into the old cartridge with a syringe. The higher the profit margin the greater the incentive to get around the restraint.
- Excessively high prices can create negative brand loyalty. More consumers are increasingly aware of the issue and will try to avoid those companies they feel are trying to rip them off. My experience with Hewlett Packard a few years ago, meant next time I needed a printer I made sure not to buy one of them.
- Internet shopping has made it easier to compare the prices of cartridges and compatibles are now easier to buy. The old vertical restraints and lack of opportunities to buy compatible cartridges are not the same.
Tips for Buying Printers
A few years ago I bought a Hewlett Packard printer for £50. I then realised a set of ink cartridges was over £20. Furthermore, they made the cartridges very small, which needed frequent replacing. And, there was no option to buy alternative cartridges.