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Comment by munificent | Hacker News Reader

One way to look at the razors and blades business model that Keurig is doing here is like so:

1. The consumer purphases product A (here the coffee maker) on the normal consumer market we're all familiar with.

2. Doing so forces the consumer to purchase product B (here K-cups) on a different market.

Keurig's goal is to control the second market. By making having all the market power, they can jack up prices to the consumer's detriment.

The reason you see companies like this invoking the DMCA or using DRM is because they have no actual competitive advantage in that second market. They are at a disadvantage because they burned money selling product A at a loss to get people into their market.

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Does Keurig actually sell their coffee makers at a loss? I've always thought they were overpriced to begin with.

Probably if it factors in how much R&D went into the DRM, the production price per unit increases. Nothing else about it is terribly complicated.

The Boston Globe Magazine had a pretty good piece on them a few years back. It was far easier to read in print, but I think this the article:

http://www.boston.com/bostonglobe/magazine/2011/0807/

Most of the R&D went into the cups themselves. Simple as they seem, it appears the company went through a lot of iterations to get the right gas mixture and volume right to have fresh coffee with long shelf-life.

if by right gas mixture you mean 100% nitrogen, it's inert, and is used in tires and bags of chips. When the bags of chips are opened, however, the other special ingredient 'crisp' that they put in escapes

That's not what I meant.

what else would they use? it's perfectly inert, there's nothing to engineer. Traditionally coffee is vacuum packed, but nitrogen works fine too

IE, you got marketed to. That's fine, I'm just saying, I don't think they did something new

Direct link: http://www.boston.com/business/articles/2011/08/07/the_insid...

EDIT: single page.

Thanks for the direct link. I probably should have discovered that was an option.

Loss-leader market models don't HAVE to abuse customers. We're just not comfortable with licensing vs ownership arrangements.

Often market forces put us here. Locked, subsidized cell phones with contracts or DRM printers are sold to get people into the market; they wouldn't buy it at full rate.

I don't want to be part of that deal so I buy the unlocked cell phone and DRM-free coffee machine. The alternative is very nearly theft.

I wouldn't agree that the alternative is comparable to theft.

When you buy a thing, you own the thing. The manufacturer may have sold the thing to you at a loss, because statistically this works out for them in the long run, but it's not your responsibility as the consumer to ensure that that deal works out for them.

Take another example: suppose I want to buy a cheap printer to hack up for some kind of robotics project. Can we seriously propose that this would be "very nearly theft"?

Or another: several cruise lines are really inexpensive because the cruise line expects to make most of their money from alcohol and gambling. I don't particularly enjoy alcohol and gambling. Am I stealing from the cruise line if I cruise with them?

That's the entire point: to hide pricing information from consumers in an attempt to trick them.

I don't understand why it's a different market. Do you mean that cartridges are just intrinsically different from the actual machine using the cartridges? This is identical to printers, so would you say the market for ink cartridges is different than the market for printers? On a literal level I suppose this is correct, but I wouldn't consider pens and pen ink to be different markets... Maybe I haven't thought it through enough.

Each proprietary cartridge type is a new market.

A market (as far as economics or competition law goes) is demarcated by whether the items within it are substitutes, not by their intrinsic nature or subject.

Examples:

- Aluminium foil and cling film are both in the market for flexible food wrapping materials

- Aluminium foil and aluminium rulers are _not_ in the same market, as they are not substitutes (alternatives)

In cases where it's not clear whether two items are in the same market (e.g. tea bags and instant coffee powder could be considered substitutes) competition regulators will use historical price data to estimate the XED (cross-elasticity of demand) between two products. If XED is high (e.g. a reduction in the price of tea bags significantly reduces demand for instant coffee powder) then the two goods are substitutes, and are deemed to be in the same market.

Now, apply this to your coffee pod/machine and pen/ink examples.

It seems to me that they are very much different markets, just like how gasoline and cars aren't the same market. Why would the company that makes electronics also be responsible for making ink? The only reason we even have that idea is because the ink comes in a somewhat electronic package.

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