In a recent
article from Edge.com, Valve's video game pricing system was looked into as an experimenting ground to test the maximization of games sold versus price. At first it seems like a simple two-variable maximization: the lower the cost, the more units sold. However there are many other factors involved that will require more testing.
This is subject to diminishing returns, of course. Valve cut L4D's cost by half and got a 3000% increase. If the price was cut by 1/4, there wouldn't be a 6000% increase but more like a 4000% or 5000% increase.
It is impossible to completely eliminate piracy. People will either "try out" a game or be too stingy to part with their money. Lowering the price of a game will reduce piracy, but can never eliminate it until the game is free.
When people see that something is on sale, they are more likely to buy because of the urgency the sale presents. If the game was always cheap, then the actual increase in sales would be lower than the one-weekend 3000% increase Valve saw.
My view is that in the long term, lowered game pricing could possibly work. As games become more specialized and cater towards specific gaming populations, the number of total games will increase. Because there would be so many games, each one would take a smaller percentage of the total gaming population. In addition, the the cost to produce the big-ticket games increases as players expect higher quality. So, the price to program games would go up while percentage of the total that buys would drop.
Of course, it's not this simple. People can own more than one game and play more than one actively. As the plugged-in culture matures and more people become accustomed to spending time on the Internet and playing games, Also, the gaming population is increasing, so although each game may have a smaller percentage of the total, the number buyers would increase. In the end, it is possible for game producers to make money by reducing the price of games.