Land Prices

Linden Labs announced recently that it would be dropping prices of land sales significantly. New islands, for example, will only cost USD$1,000, down from USD$1,675 as last I recall.

Talk about a way to piss off your most loyal supporters! Everyone currently holding land just took a major hit to their resale value, and my understanding was that land prices had been dropping anyway. While this will certainly encourage new growth, I think there will be a painful period of losses for existing (especially startup) businesses as well. As the new land is sold, those owners can price their rents lower and simply outbid the current ones still paying off their $1,675.

Linden Labs is obviously placing a bet on the elasticity of demand for land. Elasticity, for the uninitiated, is how much the quantity demanded of a good changes with respect to a price change. Some goods, like (some) electronics, are very elastic - small drops in price will produce large sales and vice versa. Other goods, like salt, aren't elastic at all ("inelastic") - you can double the price of salt, and people will still buy about as much as they did before. A few very rare goods, like gasoline, are inelastic in the short run and elastic in the long run...but I'm getting off-topic...

If the demand for new land is elastic, LL will see a large jump in sales for their drop in price. My guess is they're hoping this outweights (a) the amount of anger they're generating, and (b) the amount of extremists who go researching into OpenSim projects.

Let's see how the bet pays off.