OLPC Launches Buy One, Give One Free Program

Tha_Big_Guy23 writes "For the first time, and for a limited period only, people in North America will be able to get their hands on the XO, MIT professor Nicholas Negroponte's rugged little laptop that's designed specifically for children. And for each cutting-edge XO purchased in the West, another will be given to a child in a developing country. For $399, customers can order a laptop for themselves; bundled into the price is the cost of delivering a second XO to a child a poor country."

Comments

How'd they set the price?

[Phat_Tony]

I wonder if they made any effort to survey demand for this and estimate a demand curve to maximize their profitability on this venture, so they could give away as many free laptops as possible. How did they arrive at the $400 price to buy one laptop for a poor child, rather than any other price, like $600 to buy two more laptops, or $300 to buy half an additional laptop. In most cases, charging a 100% premium for charitable purposes isn't the number that's going to maximize charitable contribution, especially for big ticket items. I expect that if Apple charged twice as much for a Product Red iPod and donated all that extra money (plus whatever they're donating now), they'd end up with lower total contributions, because hardly anyone would buy one.

Maybe they did research this and they're charging a reasonable price to maximize the surplus brought in through the program, and hence the number of extra laptops they can buy. It's just that nice, round number of "once extra laptop," combined with the relatively huge 100% markup on a big-ticket item, that makes me wonder if anyone bothered to think about the economics and how to maximize their charitable impact, or if someone just made up some number that sounded good. Personally, I think I'd get one for $250, and I'd think about it for $300, but $400's just too much from the point of view of the value of the laptop to me. From the point of view of charity, a $200 gift is a whole lot for me right now for a single gift. I believe in their mission, but there are a lot of other charities I believe in as much or more, and I'll split my charitable contributions among them. If I thought of it as a $200 laptop plus a $50 gift, I'd definitely sign up for one at $250. Are there four people like me for every one who'd pay $400? I don't know, but I sure hope that the OLPC project bothered to make an intelligent guess.

One intelligent thing they may be doing is testing the market, rather than surveying it. That is, perhaps they'll be $400 for a few months, and see how many they sell, then $350, etc. That would be reasonable behavior to maximize their profits and thereby contributions on this program, possibly netting a larger portion of consumer surplus than any (even carefully arrived at) single pricing plan.