It will also lead to, if the app is a good experience for the customer of course, more word of mouth marketing which can lead to more publicity and more sales.

What is "consumer surplus"?

Let's say there was an product that you were willing to pay $10 for, but someone was selling it for only $6. By purchasing the product you get $4 worth of consumer surplus.

In general you probably get at least a bit of consumer surplus for everything you buy. The more surplus, the easier the decision to purchase (Of couse I would like to buy that brand new MacBook Pro for 10 bucks, thank you good sir!).

adding to that..

@ half the price and twice the customers you have all the customers who would have bought at the higher price "earning" whatever their surplus would have been + the (half) price - . On top of that you have all of the new customers "earning" a surplus beteen zero and the lower price.

It's money you're leaving on the table that people would otherwise be willing to pay you.

> What is "consumer surplus"?

This reminds me of an old article written by Joel Spolsky which explains it quite well.

http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...

It also goes into detail about different pricing models too which I found a good starting off point for a programmer to learn about pricing.

My microeconomics professor calls it the "good deal feel". That is, the difference between what customers expected to pay and what they ended up paying (savings).