Thursday, January 05, 2006

Xbox Shortage

For those of you who use 90% of your life to play Xbox, here is an economic question about the recent debut of the Xbox 360:

Why was/is there a shortage of Xbox 360's at many stores?

There is always a shortage of the most popular Christmas gift every year, and this year is no exception. The real question though is:

If Microsoft and retailers that sell the Xbox know that demand is going to very high for the Xbox 360 (which I assume they did), instead of running out of the game consoles, why don't they just raise the price to get rid of the shortage? They would then sell the same amount for a higher price and earn more revenues.

Any thoughts? I will post some articles that discuss this problem, but I want to see what you guys think on your own first.

9 comments:

Richie Rich said...

well i dont know if i qualify for this blog entry, but i spend about 89% of my time on it, i figured it was close enough.

First off i heard that the xbox 360 makes them lose money every time they sell one, they are really making their money off of the games. So i guess if they can get a shortage going it will make the games even more revered and make people want to play them even more so that when they eventually get their xbox 360 that they will want to buy even more games then before if there was no hype for the system. If they make the price higher by upping it to like 900 $ a system, then no one will have money left over to buy the games which is where they really make their money...

-chase

Anonymous said...

Well, I very rarely play video games, but I played an XBOX 360 recently, and it was pretty cool. So I guess the shortage is because its a pretty good product and a LOT of people want one. I bet you already knew this, but prices for them were getting close to $1000 on eBay, which shows you how high the demand really is and proves that stores could have stopped the shortage and made alot more money on each one. My guess on why they didn't is that Microsoft wouldn't allow them to, maybe something like if they did, Microsoft wouldn't sell the store any more, essentially cutting them off and eliminating that store's chance at profit from games or whatever in the future (assuming Chase's comment is true.) Microsoft could have allowed higher prices, but probably would have taken some heat for it from the public, which probably wouldn't make a big difference since people were paying a grand anyway.
-andrew gelly

Anonymous said...

I spend about 101% of my time either playing or just hugging my xbox 360 so i like this question alot. It does seem weird that Microsoft would sell their systems for almost half of the price that some people are paying for the same product on Ebay. But, you have to remember these things are being sold all around the world so the amount of 360s being sold on Ebay is a very very small amount of the whole, and the people who buy the 360s off Ebay are the consumers that value their xbox the highest. So high prices on Ebay are not a great example of how much consumers are willing to pay as a whole. I might be wrong but if you like about a supply and demand graph, increasing price would almost further the shortage. Rasing the price just a little bit would greatly lower the quantity demanded and bring in only marginally more revenure. And the notion of a shortage making a game more revered or hyped doesn't seem logical either. If Microsoft really wanted to play off the hype they would have created a shortage before Christmas season and then been selling their most 360s during the Christmas season which is the peak selling time.
Brian Berkowitz

Anonymous said...

The shortage could be fixed by raising prices, but its not that simple. If the Xbox 360 price was increased it would give people more incentive to wait for a PS3 or any other competition a potential buyer may be looking at. Even though the ps3 is still a while off, people still have to make a choice which to get. Chase is correct when he says games make the money. If MS did raise the price to stop a shortage they are also alienating their fanbase.

-Foss

Anonymous said...

I think Microsoft is selling the xbox 360 at a ridiculously low price for what some people pay for it. Many people will go out and buy a few x-box 360s, and sell them on ebay for anywhere between 600 and 1000 dollars. I have heard of people buying the 360s for a thousand on ebay, which suggests that microsoft should charge a higher price for their game console. However, I think chase has a point on microsoft making their money off of the games and not the console. When Microsoft produces the game copies, they reap much greater economies of scale and can make an easier profit off of the games. The only problem is that someone has to have bought the xbox 360 in order to buy and play the games. I think the real problem lies with the retail stores like Best Buy and Walmart that don't charge a higher price for the xboxes. If they charged a higher price and reaped the additional revenue, they would solve the shortage and there wouldn't be so much of a mad rush for xbox 360s.

Anonymous said...

previous comment by Wyant

Anonymous said...

I think that Microsoft may be selling their xbox 360 for a lower price than they could simply because they want as many people fighting over them right now as possible. If the price was made so there was no shortage there would be no hype. By making their product the most popular gift of the year, having an xbox seperates you from the older gamers. More reasonably though, microsoft isn't making their money off the game player. Its hard to use one without a game to play. So with such a low price for the player, they get lots of people sucked in. The people then realize they must drop another $50 bucks on a game. With this strategy the gamer can work his way up to the max they want to spend by chosing a certain amount of games to buy.
david hale

Richie Rich said...

like 3 of you quoted me, im so cool...

but yea, those things aren't nearly a thousand dollars now, they have gone down to basically a 100$ more on ebay then the store stock price... (i checked, i want one badly, how much u want for it burko lol)

i heard that the 360's aren't gonna come out for another 6 months now, atleast the next batch of them, or thats what the lady at target told me

that had nothing to do with the topic, but i already made a post so i thought i would just mention it

Nic Neinken said...

Can Microsoft not just have a heart. Now I know it's a popular christmas time gift item and demand is high, but there are kids who save all of their money to buy the XBOX 360. One has to remember who the target audience is for the game system. It's kids and young adults who are looking to have fun. Fun has a price limit. If it were a thousand and so dollars it would not be going into many peoples' homes. Also Microsoft has brains. Think about this: What would happen after the initial schock of the XBOX 360 and demand goes down? No one would ever pay a thousand for XBOX 360. Now think about this what if MS had Xbox at 1000 to begin with and then after six months no one's buying it and so MS announces a price drop of 600 dollars. Think about how many angry people MS would have calling them, and think about how many fans of XBOX MS would lose to other companies per say Sony and Nintendo. It's a vicious cycle but you have to think about the future. On that note XBOX may be even less than 400 dollars because innovations could happen in the production of the system.