"The Law of Diminishing Returns"???

We just moved one of our systems from one room into another. If it had started out in the latter room, we would have surely traded out components and cables in order to 'get it right'. Only because we've already heard the system in the first room do we know that it works for us, because right now in room #2 it sounds mediocre at best. So yes, Rpatrick, the room treatment is crucial. I've been in several listening rooms in which the treatment simply negated the effects of the room, and the speakers which were seven feet from me sounded almost like headphones. No joke.

Also, Magnepanmike is absolutely right that the improvements up the audio cost ladder are often huge. However, the question is always "Does that work with the other components toward the end goal of meeting MY standards of satisfaction?" Everyone seems to agree that spending more often gets you more, but is it necessarily more of what YOU want? I've literally gone from one opinion extreme to another after doing something as simple as swapping out interconnects. And the component I was deciding whether or not to keep were the speakers, not the interconnects.
Hopefully, all of these responses have answered your initial question.
All the best,
Howard

The law of doubling!
My own personal belief is that when one wants to upgrade a component, if the new list price is DOUBLE that of the existing piece, there will be a noticeable sonic improvement.

Now for the caveats! Synergy is the most important factor, as many have previously said. What type of sound do you want? Slam and bass punch? Midrange to die for? Sound-stage and holographic presentation? Treble response clean, effortless and "to the moon"? Do you like to "crank it up", with a bass response to a TRUE 20 Hz (in this later case, room tuning is mandatory!)

Advertising budget! Big corporations that spend "beaucoup dollars" on multi-paged magazine ad buys, and having an intertwined corporate structure (Harmen, for example), will have a unit cost that can be MUCH greater than a small company that has "word of mouth" advertising performed by satisfied customers.

Cosmetic beauty! I'm using Atma-sphere equipment (Ralph Karsten era), which looks more at home in a studio, radio station, or on the road as P.A. gear. But oh, what super sound for such a reasonable price! Laser etched bead-blasted heat-sinks and chassis, mirror polished tube cages, exotic woods (speakers), gold silk-screened lettering and other beautiful design applications can rocket the list price, while doing nothing for the actual sonic performance of the piece!

Do your research! If you are planning on spending a "king's ransom" on audio gear, you should consider a trip to Las Vegas in January for the C.E.S./THE Show. The knowledge gained could save you a considerable sum, and there are show specials and demo units for sale as well!

As an economist i would say that first you would need do is to derive your personal production function. Where the thing being produced is good sound which can then be translated into utitity or personal happiness. this would be a weighted function with some variables or maybe in this case just one variable, cost. thus making good sound a function of cost, this is assuming that all components have the same cost to quality of sound ratio. if the sum of the weights of the function is greater than one, then you are experiencing incresing returns to cost. if the = to 1 then constant returns to cost, if less than one diminshing returns to cost. Here are some interesting links to items of interest
http://cepa.newschool.edu/het/essays/product/returns.htm
http://william-king.www.drexel.edu/top/prin/txt/Cost/cost17.html

I see everyone here agreeing with sean, but i gotta say he is totally wrong.
Sean, get yer head out of yer butt. ;)

The correct forumla is...

N = price of new gear
O = price of old gear
G = total price of current gear minus N and O
I = Slappys IQ after a 6 pack of Sawtooth Ale

N x 3.2(G + O)
-------------- + I(G-N+O) = Improvement per slappy.
G + NIO(6.326/I)

Ok....

GOT IT EVERYONE?

Now we can lay this thread to rest.

YER ALL WELCOME!

I think the same thing is true about audio addiction as the thing I observed with some of my friends dependence on weekly sessions with their shrinks, "Everyone is as crazy as they can afford to be."