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Retail Store Scalping Wii Consoles on eBay
C0rinthian writes "ArsTechnica reports that the games retailer Slackers has been keeping their stock of the Nintendo Wii off their store shelves, and is instead selling the system on eBay for $400-500. (A $150-$250 markup)" This follows their look at the other side of the coin: why some retailers insist on Wii Bundles.
Lots of manufacturers have reseller policies that dictate how you can sell a product and the minimum price you can charge. Nintendo could simply decide they won't be selling anymore Wii consoles to any stores not following their policy.
July 03, 2007
Supreme Court lets manufacturers set minimum prices
Decision reverses 1911 ruling -- what does it mean for consumers?
http://blogs.consumerreports.org/shopping/2007/07/supreme-court-l.html
They've doubled production this year but demand is still increasing. There was a hard drive shortage a while back. Nintendo also is being careful about how they ramp production to ensure they don't end up with poor quality...if you ramp up too fast you'll end up with higher defect rates.
It may not be a hard burden at all. The court held that vertical price fixing of this type of not per se illegal if (i) the seller doesn't have "market power" (i.e. such a high market percentage that it can influence prices throughout the entire market), and (ii) the seller can make an arguable justification for the price limits as improving competition. Note that "arguable" when used in this context means nothing more than presenting some argument that is not completely laughable. It does not mean proving the point beyond a reasonable doubt, with clear and convincing evidence, or with a preponderance of the evidence.
[Repost - didn't notice that I hadn't logged in correctly]
Legally it's fine. Nintendo doesn't want them to, but they have to be very careful about cutting off shipments or Nintendo could get busted for price fixing.
Your first statement may be true, especially if there's no distribution agreement price ceiling. Your second statement is essentially false. There is nothing exceptional in antitrust law that prevents a company in Nintendo's position from refusing to deal with with a customer who wants to resell the product a different price, especially if that price is higher than the MSRP. In addition, the Supreme Court's Leegin Creative Leather Products decision this year made it much easier for a company like Nintendo to obtain actual agreements with its customers that products cannot be sold for less than the MSRP.
Even before Leegin, companies could impose so-called Colgate pricing policies where they could unilaterally refuse to sell to distributors that resell at prices other than list price, and terminate distributors who fail to comply with the policy. Those policies are not "agreements" under Section 1 of the Sherman Act, so that the manufacturer would have to be a monopoly under Section 2 in order to be subject to antitrust scrutiny.
In Nintendo's case, even if it were to be ruled to be a monopoly, it would be difficult to prove that the termination of a distributor for selling products at a higher price than it desires creates an anticompetitive market for consumers and creates a monopoly rent.
The way I read your statement, you're making an assumption that I'm not entirely sure is true. It appears that you are assuming Nintendo wants to meet demand.
To be fair, I don't think they are intentionally holding back on production solely to produce scarcity. I think the statements they have made (of wishing they had more product) are honest. However, I also believe that this is not a marketing and sales issue, but a financial one.
Nintendo might be able to ramp up to meet demand, but the problem is one of understanding demand. What no one is sure of is what the real demand is. If they are producing 1.5M units/month, is real demand 1.501M units/month? 3.0M units/month?
The risk that Nintendo faces is the same risk that many telecom and networking companies experienced in 2000-2001. In that case, a capacity shortage of certain components led to over-ordering of the product, and thus when production was ramped to meet the (artificially) inflated demand, the equipment companies sat on billions in inventory that they were forced to write down (because no one wanted to buy it).
This is a slightly different situation (no artificial demand, just hard to forecast the real demand), yet the same lesson applies. I believe Nintendo is taking a cautious approach to its product ramp. Since the supply chain is something on the order of 4-6 months from initial orders to final assembly, they face huge inventory risk if they significantly overshoot demand. Their conservative forecasts and production have lost them some sales, but it may be less risk to lose sales than to risk sitting on a ton of inventory.
You don't need an inside scoop, you just need to read the news and use your brain.
Nintendo has ramped up production, considerably. However, demand is still strong. Building a new factory isn't a minor investment, and it takes months to do it. Which is why they are rightly cautious doing it, because if you guess wrong, and the demand wasn't permanent, you sit on a million-dollar factory and trucks of devices.
Everyone underestimated both the permanence and the amount of demand for the Wii. Which means Nintendo didn't get a chance to stock any overproduction during the summer for the christmas business, because there wasn't any overproduction.
Assorted stuff I do sometimes: Lemuria.org
They are calling foul. http://slackers.com/
What's up? Is their a particular component that is hard to come by or has a real low yield? This was already discussed at slashdot:
http://games.slashdot.org/article.pl?sid=07/12/17/178206&from=rss
To summarize, Nintendo more than doubled production (to 1.8 million/month) but underestimated how much demand there would be (can't really blame them as this is the first time I remember one item being the thing to get two Christmases in a row).
It's estimated that they could've made an additional billion in sales this season. However, increasing production too quickly is risky as it can cause decreased quality control. And while it appears they're not trying to manipulate demand, they're also don't want to cause it to plummet by putting too many units on the market.
More details:
http://www.next-gen.biz/index.php?option=com_content&task=view&id=7965&Itemid=2
http://www.nytimes.com/2007/12/14/technology/14wii.html?_r=3&pagewanted=1&ref=technology&oref=slogin&oref=slogin&oref=slogin