Sennheiser in this case is being fraudulent by claiming that there is an actual difference between the two models while in reality they are exactly identical apart from a tiny piece of foam clearly put there only to defraud customers that want better sound and are prepared to pay for it.

To quote the amazon page for the 595's:

"The HD 595 is the top-of-the-line headphone of the audiophile 500 series range, boasting a new level of comfort and sound quality. Features include our E.A.R. technology and a highly constant,compressed cellulose fleece to reduce total harmonic distortion. Velour ear pads and high-quality leatherette headband both provide outstanding comfort."

compared to the 555's:

"A comfortable, high-quality headphone system"

Don't you see how this is fraud at work? Nowhere in the description of the difference between these models is the piece of foam mentioned or hinted at. To the contrary, the description of the 595's indicates that they include ADDED technology to improve sound quality and comfort. Which is full-on lie.

No, pricing is not connected to incurred cost. That's not the issue.

Nowhere in the 595 description do I see wording to the effect "exclusive to this model". Nor do I see anything in the 555 description that says it is missing features of other headphones in the line up. So where is this full on lie?

If there's something you're not telling someone, which would really piss off that someone, you may be guilty of a lie of omission.

Would you feel better if they were both identical, except for labelling, but carried different prices?

I agree it's not fraud, though, at least unless their advertising materials made false claims about the products' differences. For example, if they claimed that the higher-end headphone removed certain artifacts, but didn't disclose that they had created those artifacts in the first place, that would be misleading at best...

  In a well-functioning market, the price should be driven by
  competition towards a level a bit above the production/R&D costs

How do you decide the strategy for recovering a fixed cost of millions of dollars from the price of the individual product? Price all DropBox accounts at $10 and you may not have enough margin dollars per account to cover your R&D. Price all DropBox accounts at $20 and you may not have enough volume to... cover your R&D.

Assuming the incremental storage for 50 GB costs $2, it's ok to recover $8 and $16 respectively for fixed costs. Just because they are fixed doesn't mean that the user shouldn't have to pay for them, or that it should pay in the same amount. You could argue even that the R&D should be paid in a 2:1 ratio as well by those benefiting from 100 GB versus those benefiting from 50 GB. It's the risk of the entrepreneur to decide where to set the bar so that, at the end of the day, the margin multiplied by the volume recovers the fixed costs.

Competition driving the price towards a level a bit above the R&D (fixed) costs doesn't work at all for products where the marginal cost is trivial but the R&D expenditures are huge. Why Ask, with 1-5% market share, cannot compete with Google Search, which has more than 60% in the US market? Crawling the web, building the index and removing spam costs more or less the same in terms of R&D if you aim for an approximative identical standard of search quality in the search engine. But having a market 10 times greater or 2 times greater (in Google versus Bing) means that one allows himself 10 times or 2 times the total fixed costs at equal levels on a per user basis. No wonder Bing losses millions while Google uses the ad revenue to subsidize its other operational branches.

In a "well functioning market" buyers would be aware of what sort of product could be built with what sort of development time, and would pay for the work. (I think this is what's happening with Minecraft - the people who bought the Alpha see themselves as funding its development).

My take on it, anyways.

Were it something important that I needed for my job, or were the cost less negligible, there's no way I'd throw a bunch of money at something and hope the inventor/developer/designer finished it adequately. If someone walked up to you and said "I'm going to build an electric car to compete with Tesla Motors, give me $80,000 and you can have the first one" what would you tell them?

EDIT: Kickstarter too. I've invested small amounts of money in things that I think are worth supporting, with the hope that they get finished well. But I'm not counting on it. It's a risk vs reward analysis that I'm willing to try, but only on small scales.

Pricing based on cost is irrelevant because that has nothing to do with the value created or what people are willing to pay. E.g., why did Sony and MS sell the PS3 and 360 below cost for so long? Well, no one would have paid the $1000 plus margin that Sony would have needed.

On the other end, do you really think that bottle of Coke you buy is priced anywhere based on the cost of manufacturing? The ingredients in that cost about $0.02, but they charge $1 at the store. The 20oz bottle has maybe an extra couple cents of cost, but they charge twice as much.

To your point, Ask could have 5% share of volume, but if their ad platform was better to the point that they could charge 10x what Google could, they would be doing pretty well.

I remember one day going into the convienience store near my office and finding that all the coke prices were identical, 1.69 iirc. The small bottle, the widemouth litreish one, the two litre, all the same price.

2) you still get the point. it's then even more clear that it has nothing to do with the underlying cost.

s/dong/don't/

Luxury goods have never been "well-functioning" markets by the definition you appear to be using.

It is somewhat unfortunate as a consumer that the market has turned out that way, rather than as a more competitive market. It makes shopping for audio equipment a lot more time consuming, because prices don't have much to do with either production cost or quality.

This seems to me why people complain about IP laws. They encourage one type of good behaviour - innovation - but also discourage another type of good behaviour - sharing.

And they make sure to keep their selling arguments to "musicality", "passion" and "emotions" because that is something you can easily sell, it gives you a very unique selling position and is virtually impossible for the customer to measure and compare.

The real question that they should be asking is should they have just sold them all for $150 and not risked the bad PR? They may have sold enough at the lower price for it to come out a wash, and not be embarrassed by something like this.

The risk was minimal. Everybody does it. The odds of them getting targeted weren't significant, given the pool of possible targets. You could spend every hour of every day cataloging all the places this occurs. And this still is yet to be a big deal, even.

(Please note that when I say everybody does it, I mean simply that everybody does it, no more, no less. I'm not passing judgment about the virtues or lack thereof. It's just the truth. Oh, and everybody doesn't literally mean every single person, but this is a well-established meaning of the term.)

Air needs to move for sound to exist, even in the direction away from your ear. If stuff's in the way, the sound's going to be muffled.

Does it looks like? They're doing it!

I know in a limited range it's good to have a better and a worse to sell the median, but that doesn't apply here. They have many models above and below these two.

The trick is to effectively capture that surplus without pissing off your customers or making them feel they're being ripped off.

There is no need when they have headphones much cheaper, and MUCH more expensive than these two.

I do agree with your reasoning if the above wasn't so.

and who claimed that? there is however a moral obligation to not lie to your customers.

if anything, the crippled version is actually more costly to produce, since some R&D went into making it crippled.

I do, however, find it ironic that the $199 555 model physically contains more "parts" and more manufacturing costs than the $349 595 model.

Curious if anyone has thought about the correlation between shareware/trialware software and these headphones, being that HN readers are generally more software than hardware people. I mean, the only difference between my 30 day trial of Something.app and the unlimited version is a 32 character string, and depending on my current morality level, I could find any number of those strings floating around the internet.

That's true, but imagine what they could do differently. They could have a whole separate assembly line to make the cheaper headphones out of different material, for example. But ironically, this might actually drive up the cost of both headphones, since they'd lose the economies of scale that they have now.

I agree that it seems wrong to intentionally make your headphones worse, but it might be the most cost-effective way of producing a cheaper set, given that you're already making the expensive model.

When I buy headphones I expect more than a license to use technology.

Why do you believe that? A company has no moral obligations to its customers in any way.

However everything we humans do has moral implications, and company that lies is clearly behaving in immoral way. Then it's up to a customer to decide based on her morals what is the right approach to dealing with such company.