Tech Industry

The economics of cables

Why are cables that you buy in stores so much more expensive than online?

I finally have a new receiver to replace my accursed broken Sony (but that's another story). In any case, I also needed an additional HDMI cable to connect my Xbox and TiVo through the receiver. I ordered one online, but the receiver got to my house before the cable did.

You know how it is when you get a new toy. You really want to get everything hooked up and play with it. So I looked around to see what it would cost me to just pick up a cable locally. What I got instead was a reminder that, almost universally, cables sold at retail carry an incredible markup relative to their cost or even to what you can find online in quantity one.

And I'm not talking Monster Cable fancy-pants stuff either. The cheapest generic 6-foot HDMI cables that I could in Best Buy and Target in-store inventory were going for $29.99--a 300 percent premium over the $9.95 I spent at (which wasn't even that great an online price, but the shipping was free).

This experience got me to playing economist. Why, in a free market, are cables so flipping expensive? After all, these same stores carry all manner of items that are priced very competitively relative to online.

Here are some theories and related thoughts. Economists, professional and otherwise, feel free to contribute your take in the comments.

  • Cables come in a lot of complex variants and that makes them a relatively expensive item to stock for local retail. I'd maybe buy this for oddball stuff (which, in fact, tends to be hard to find in local stores at all), but I don't see anything about a common HDMI cable that makes it an unusually expensive item to stock.
  • Retail packaging and display cost more. Again, there might be some small effect, but it couldn't begin to account for the magnitude of the observed markups.
  • Cable purchases are relatively insensitive to price. Here, I think we're getting to the heart of the matter. The scenario I described for myself is pretty typical. You buy a new THINGAZON 2000 and you need some cable to hook it up so you run into a Best Buy, grab what you need, and head home to play. You may grumble a bit at the price, but you probably buy the item anyway because you need it (or at least really want it) NOW. Conversely, if it were half the price? You probably wouldn't buy two. Nor would you probably buy a random cable on impulse just because some store was selling it for a good price. (In other words, consumer cable purchases are fairly price-inelastic.)
  • People tend not to comparison shop. It's something you need now. Prices are in tens of dollars not hundreds of dollars and are often considered in the context of the more expensive electronics the cable is being used with. Plus, in many cases, shoppers have to ask the store staff for help. All these contribute to an environment where the buyer tends to go into the most convenient store and are just happy to find the missing piece that they needed.
  • Reduced price range of cables. I suspect that this is a secondary effect, but keeping the generic cables in the $30 range, rather than the $10 range, doubtless creates much more opportunity to sell even higher-margin $50+ premium cables. Someone who might be willing to spend 2x for the perceived "good stuff" (leaving aside whether it is or not) wouldn't necessarily make the same decision were the premium 5x or more.

Have I missed anything?