The Pricing Impacts of Network Effects
The HD-A1 retails at $499 and iSuppli estimates that the parts in the machine cost $674, while other costs associated with the device (packing, cables, remote control, etc.) push the total cost of a unit over $700. So why is Toshiba willing to price this thing over $200 below cost? (And that's just at retail - surely the wholesale price Toshiba receives is even lower.) The answer is simple: the loser of the next-gen DVD war ends up with nothing, so Toshiba needs to bank on early adopters tipping the market to HD-DVD. If lots of people buy HD-DVD players, then that will lead to more HD-DVD software, which will increase the value of the players, et cetera.... But it's a risky gamble (and one that the makers of Blu-Ray players, which are priced near $1000, don't seem to be taking).