Why do anime discs cost so much in Japan compared to other countries? Buying DVD and BD from Japan seems to be a lot more expensive in Japan than overseas in a country like the US. 

It might cost someone in the ballpark (these are just estimates, actual prices may be more dramatic) of $70 for 2 episodes are in a DVD for a new series in Japan. While in the US, $45 for 4 episodes for the same series... 

Even if we compare Western release to Japanese ones in the same market. The domestic Japanese version come at a higher price per disc/length than western releases:


The four-disc 146-min Harry Potter Special Edition, is ¥3500. 
Compare it the two-disc 60-min Madoka Magika Vol. 1 Special Edition, which is ¥5500.


Why is the cost so high? Although it's nice to see your favorite shows in 1080p with less compression, that alone can't be worth the price tag...
From what I could gather from this ANN article (from the &quot;The High Prices... Explained!&quot; part), the high price is due to rental pricing. Basically the home video industry was originally &quot;set-up&quot; so that only a few thousand sales were made for niche releases, and these were made to video rental shops. The prices were around $89.95 (in America, which also used this model), but it worked well because with just a few thousand sales one could make over a million dollars in revenue, and the video shops also benefited because they had a semi-exclusive item (since it was too expensive for &quot;normal&quot; people to buy).

Initially, video industry people didn't think there was much of a market in selling to collectors.
But the fans proved them wrong. Otaku of all kinds (not just anime fans) started buying the videotapes and laserdiscs, and they bought them at those high prices that were intended just for video stores. There was no reason to lower it. In fact, there were a few experiments to drop the price to a more affordable amount, but that usually resulted in a slight increase in sales -- not enough to make up for the drop in revenue.

(emphasis by me)
The article goes on to say that since we are talking about a specialty market (since only the hardcore fans really want to own the products), and not a mass-market, the prices stayed astronomically high.
Basically, a few thousand fans buying a certain anime are enough to nearly support the whole budget of a show, and disc sales are basically the only way in which a show can make profit.
For these reasons, even as the rest of the home video industry lowered their prices, the anime industry stayed at the same high prices (they basically had no reasons no lower them).