Viewpoint: Sell the Mercedes?

"Sell the Mercedes! Hock the mink!" So wrote a still-active audio scribe (Peter Moncrieff) a quarter century ago while reviewing a pricey (for the time) tube preamp. Today, you can still pay more than the price of a Mercedes for an amplifier or speakers. And while few people today would be caught alive wearing a dead rat, the proverbial mink coat wouldn't go far toward the price of that top-drawer, custom home theater installation, either.

Of course, we review a lot of expensive gear at Ultimate AV, but it isn't all out of reach for the average serious hobbyist. For $10,000, you can assemble a home theater system that will knock your friends' socks off. And while video projectors are still expensive as a group, there have been exciting developments at the low end of the projector price range—that $10,000 price includes a very respectable, low-end projector and screen.

Alternatively, for the price of that $5000 projector and screen, you can substitute a flat-screen plasma TV if you prefer. That should be this fall's going price for a 42-inch, high-definition plasma from many major manufacturers, though you'll certainly be able to pay more, if you insist. You might even be able to wrangle a more home-theater-like 50-incher for not much more. If you need to shave the budget even thinner, you can opt for a rear-projection DLP or LCD. Or maybe even a big-screen CRT, which are now going for fire-sale prices. For those who can deal with their size and weight, CRT RPTVs are true bargains.

You can even get by for less. There are decent receivers out there for $1000 that even a terminally fussy audiophile could live with (while still pining for that system from Krell or Mark Levinson!). And some very respectable speaker packages sell for around $2000. Yes, many DVD players are flying out the door for under $100 these days, but let's throw caution to the winds and shoot for a $250 model that has an HDMI or DVI output. It's also tough to find a DVD player these days that doesn't offer progressive scan. Toshiba has announced a universal player in this price range, and Pioneer has a good one for $200 (though it doesn't have DVI or HDMI). If you already own a good television, that puts you into a decent home theater for under $3500.

At those prices, however, you're well below the point of diminishing returns—a sort of Murphy's Law for shoppers—which states that for any purchase, the more you spend, the less the incremental improvement with each upward step in price. The curve rises steeply at the low end, where each 10% price increase is likely to bring significantly better performance. But as you move higher in price, it can take 50% more cash to deliver what most buyers would consider a noticeably better product. As the curve flattens out, the hit on your bank account turns to 100%, then 1000%, and before you know it you're chasing ghosts.

The problem is that the knee of this curve—the price at which the performance enhancement starts to level out with each additional dollar spent—isn't easy to pin down. It varies with each product category and each potential buyer. And it often takes a long time to flatten completely—if it ever does. It's on that long stretch of gradually increasing performance where the tough buying decisions take place. Above a certain price, personal preference will always trump total objectivity. For example, you may find a speaker you absolutely love for $10,000/pair, even though logic tells you that it's only marginally better in most respects than another pair at half that price. You're filling out the credit application, or checking the limit on your MasterCard before you know it. But if you have the money, you don't care. That's the one for you. The "gotta have it now" reflex is human nature.

But if you listen to that $10,000 pair of speakers and wonder why you prefer the $5000 pair you just compared them to, diminishing returns may have already set in for you. It's also possible that the $5000 speakers are objectively better. You usually get what you pay for, but there's no law that says more money always buys better sound, tastier wine, or a faster, better-handling car.

Great engineering, economy of scale, and any number of other factors can trump the law of diminishing returns and lower the price/performance ratio. Makers of super-high-end products often find themselves on the horns of a dilemma: The more expensive the product, the prettier the package needs to be to command the price. That means more investments in the parts that show. A heavier chassis, for example, or a thicker, shinier front panel can cost the manufacturer big money, which is then passed on to the buyer. A $1 increase in parts costs can add $5 or more to the retail price.

And as the price increases, there are fewer potential buyers. This in turn means a smaller production, and, inevitably, even higher prices! But luxury goods can often bear the burden: as the story goes, if the dollar gets weaker, the price of a Mercedes goes up. If the dollar gets stronger, the price of a Mercedes still goes up.

Mercedes buyers may be relatively price-insensitive, but AV buyers often are not. Nevertheless, if you visit this Web site regularly, chances are that you consider your AV system an important part of your life, one that you'd rather put money into than, say, a Mercedes. You're also likely to put the point of diminishing returns higher for your AV gear than for other things. Of course, we'd like to have it all, but unless we win the lottery or live next to Bill Gates, most of us must make tough choices all the time. Fortunately, unlike a car or a house, we don't have to acquire or upgrade a home theater all at once; for most of us, it's a constantly growing investment that we add to year by year, as our resources and circumstances allow.