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Why You Can't Buy A 360
Slate Magazine is running a story about the difficulties of finding an Xbox 360 this holiday season. They explore the reasons behind the console shortage, and have some ruminations on Microsoft's motives. From the article: "So, supply shortages are a fact of life. The puzzle is somewhere else: Why don't companies raise prices when supply is short and demand is frenzied? Leaving aside oxygen and a few other essentials, there is no such thing as an absolute shortage of anything: There is only a shortage if the price is too low. At the moment, Microsoft is easily selling out the half-million or so Xbox 360 units (there's no official number) for prices starting at $300 for the basic package. Why doesn't Microsoft price them at $700 instead?"
Because supply vs. demand only works in freshman economics class. If Microsoft priced the things at $700, nobody would buy them if they knew the PS3 would be $300. Furthermore, there are certain expectations for console pricing. Every company that tried to make a $700 console (namely, 3DO) died a slow and painful death.
Besides, the idea behind selling consoles is not to make money. The real money is made on games. The console needs to go to the people who will buy the most games, which are also the people most eager to wait in line at Best Buy all night to grab a 360.
I heard this guy get interviewed on NPR, and he sounds like an intelligent guy, but I think he is over analysing things, and missed the point that MS just got the console out the door as fast as possible, which is why they couldn't stockpile them, as he questioned why they didn't. MS's only intention was just to hit the holiday season and get out as many as possible. The price they chose was only made in the attempt to second guess and match what the PS3 and Rev will sell for. They will most likely still be selling out when the PS3 hits the shelves, and if it is $700 on the shelf next to a $300 PS3, the sells will plumit. Start at $700 and lower $300 in the course of 3 or 4 months is unheard of, and will only scar customers. His idea of MS selling their units through eBay themselves is interesting, but that would only piss off retailers that MS relies upon.
It's absolutely true that if you want a shortage of something, price it below its market worth.
Doesn't matter if it's gas (Carter), grain (18th c. France), or Xboxes, if the market thinks X and the price is set at X-something, there will be a shortage.
OK, so there's a shortage. So what? Xboxes are not energy or food. There's no particular harm done, other than to MS's immediate profit, by underpricing the 360.
Maybe MS has decided that the revenue from higher-priced XBoxes is more than offset by the cost in bad publicity when the market price drops by half by spring. Maybe they realize the value of being the hot item instead of Cabbage Patch dolls this year.
There are other forces at work besides the next quarter's earning report. A console system isn't a one-time revenue stream like a loaf of bread or a gallon of gas. The Slate writer is right in his assessment, but also short-sighted.
...but I haven't seen any kind of shortage. You can find the 360 at pretty much any decent retailer. These things aren't exactly jumping off the shelves here (Southern USA). Everyone that I know that was planning on getting one right away has gotten one, without standing in God-awfully long lines or any of the other stuff I have heard of people going through to get one. They bought them at normal retail prices, and didn't resort to paying $5000 on Ebay. Perhaps it is just the extremes (rural and urban) that don't have any of them?
Perhaps they wouldn't piss people off if they put out a price map. First run will be $999. Second run 2 weeks later will be $699 final run after Xmas will be $299 form then on. This way you can advertise it as pay what you want at the time that you want. If you want it 2 weeks earlier than everyone else you'll pay $300 more. is it worth it or should you just wait the 2 weeks or do you want to wait until after Xmas? Would all but stop the ebay scalping and would help Microsoft to not take a loss on the first ones sold. (ohh I'll get modded down for that I know. I can't give a suggesting that'll make MS money)
Paying taxes to buy civilization is like paying a hooker to buy love.
Today, I walked into Futureshop (BestBuy in Canada). I asked for a 360. They received 62 of them this morning. Got it, the warranty, a controller and Project Gotham Racing 3. There's no trouble getting them. At least in downtown Montreal. The stored had been opened for 30 minutes and there were still some left, tough that might be because of the snowstorm outside.
Because the supply bottleneck won't last forever. They have to keep both the fanatics and fence-sitters happy for now.
How would you feel if you paid $700 for an Xbox in November and then the schmuck down the street picks it up for $300 2 months later? You'd likely see it as MS gouging its loyalest fans for a quick buck and catering to the common crowd once your wallets were tapped.