Originally Posted by Bob Dopolina

Basic economics should be a required course in high-school.

Here's how the industry works:

1. OE factories (the guys buying the parts and building the bikes) pay much less for parts than aftermarket buyers do because:

i. They are buying A LOT of parts
ii. There are no distributors, retailers, packaging are other costs involved other than material, manufacturing, R&D, tooling and the fixed costs of running a company.

2. The reason Shimano/SRAM do this is because if you buy a bike with their parts on it you are 8 times more likely to replace those parts with a similar or better item from the same company at retail prices.

3. Retail prices must support:

i. Aftermarket packaging
ii. Distributor margins and fixed cost,
iii. Retailer margins and fixed costs
iv. Additional transportation costs,
v. Higher import duties.

4. Other factors affecting pricing:

i. The US dollar is in the toilet. It is down about 10% from levels the industry functioned at a few years ago.
ii. Global increase in materials,
iii. Global increase in transportation
iv. Increase labour costs in China (about 20%/yr)

When you compare the falling cost of electronics vs bike parts you are comparing Apples (pun intended) and oranges. OLDE technology falls in price because the cost of the R&D and tooling has been recovered. NEW products come out at a premium price.

With bike parts each iteration of something has R&D and tooling costs still included because component manufacturers stop using older tooling when they introduce a newer version of something. A better analogy would be the price of cars vs bike parts.

BTW, the margins in the bike industry are laughable. If you want to talk about real money look at clothing or sports shoes.