Why are new products always very expensive when first released?

Because the product is new, economies of scale haven’t been achieved yet. The manufacturer hasn’t figured out the most cost effective and efficient way of producing it in a large scale. Also, the product may initially be under patent protection, so the barriers to entry into the market will be higher for a potential competitor. And, under patent protection, the manufacturer may wish to recoup the R&D costs.

Supply and demand. People are prepared to pay more to be the first to own something new. It helps prevent new products selling out too quickly.

My products are fairly high tech. We use custom ICs and surface mount technology for everything. For a certain sensor, in high volume production, the ICs will cost $0.50, the substrate about the same, stuffing and testing also about the same $1.50. What does a single, first prototype cost? $100K to $!50k. Why? Engineers need to specify all the functions and design the circuit. $25k IC designers start working on the design. $25k. Substrate and test plan. $25k. Testing with SPICE simulation $5–8k. Breadboard prototype build using conventional components $30k (even after we do the SPICE simulation) If it does not work, figure another $20k.
And we only made one piece. Usually we will make them in sets of 5 – 10 as the cost is not much higher than the single board.
I am not including other aspects such as: legal, patent work, marketing research, component search, warranty plans, sourcing, redundant sourcing, I/O protocols, etc..
Good people don’t usually work for free. Think how many widgets we have to sell just to recover the development costs.

Don’t be discouraged. It is not all negative. If you have something you want to make you might approach a university in your area. Many of them have some form of entrepreneur program or incubator just waiting for projects. Make sure you have a Non disclosure agreement, NDA, in hand before you start detailing your ideas.

Not knowing whether the product will sell or not has a great bearing on the new product price.

This occured with calculators, when they first went on sale.

Texas Instrument was a very expensive calculator at first, simply because it was new.

Now, calculators can be bought for a dollar.

Recouping the cost of retooling.

It can be many reasons.

Start high, and if it sells great! If it doesn’t you can always bring the price down, run specials, etc.

With pharmaceuticals medication they are trying to recover what they spent in research, this is why they are given a patent, and the biggy is if their drug is a completely new drug that no other medication can treat, there is no competition and the company can charge a lot of money. You even see this regarding medical tests. Only one company owns the right to testing for the breast cancer gene, and they charge a lot of money for it.

To sum it up, most companies do it because they can, because the market will pay for it if it is considered a fairly unique item that is highly desired.

It is called a “skimming” strategy. People who really want it will buy it at the initial high price. And then the price is lowered later on for the more value-conscious consumers.