Tony argues that video rental stores should switch to a new, cheaper videocassette. The new cassette costs a third as much as the old kind but only lasts half as many viewings. In Tony's mind, this is still a good deal: you're paying a third of the price and getting half the life, so the cost per viewing goes down.

Anna's response is that Tony is focused on the wrong number. The cassette itself is only 5 percent of what a store pays for a copy of a movie. The rest is royalties to the studio. So even if the cassette portion drops by two-thirds, that savings applies to just 5 percent of the total price. The overall cost per copy barely moves. And since the new cassettes wear out faster, stores would need to buy replacement copies sooner, which means paying those royalties again.