Why would it? And for that matter, got some examples where I’ve been overly unfair (I’m not saying it didn’t happen, I just don’t remember talking about Sony or Nintendo much, besides calling you a fanboy).
Who are these strange people for whom money is no obect?
Yet none of these explanations stand much scrutiny. Even if people did think lines are more “fair,” Microsoft is not indifferent between high prices and queuing because the former involves: high prices! Why doesn’t Ferrari charge $30,000 for an Enzo, allocate them by queuing, and somehow make higher profits due to the new, fair allocation system?
The explanation Harford favours is Taborrok’s, but Taborrok’s isn’t very satisfying either. He proposes that people are actually really sensitive to price. The price which would clear the market (leave no shortage or surplus) is just a little above $300, say $350, and Microsoft asked the former rather than the latter out of caution. Asking, say, $400 would lead to a lots of unsold systems because people would wait for PS3. But this explanation is hard to reconcile with the high prices on Ebay: as Taborrok notes, it requires that consumers are irrational in the sense that someone who values the console at, say, $400 for some reason fails to sell it on Ebay when the prevailing price is $750. Most of the explanations get shot down because they require Microsoft to be “leaving money on the sidewalk;” this one fails because it requires consumers to be throwing cash on the pavement. (Another quite plausible explanation someone notes is simply that Microsoft just fucked up.)
It’s still a bit of a mystery, in my opinion. I suppose the reasonable arguments taken together provide something of an explanation even though each one individually has some failings.
The bottom line is there is always a much higher demand at launch for these systems and in the past they were priced higher to promote that exclusivity for early owners. The game industry is bigger than it’s ever been and many people see no problem spending $1000 on a piece of electronics today, compared to a different sentiment maybe ten years ago (or more…)
Sony claims PS3 is the be all, end all when they talk about it. We all know that building them costs far more than the price they’re introducing it at. Raise the price to cover your costs and take advantage of the people that want to spend their money so badly to be first.
A higher price for PS3 is supportable through an entire year at least simply on the basis that it’s “the best”. Marketers should be able to handle this scenario and push the system’s SHEER POWER as the reason you need one and that you should pay for one. Hell, Kutaragi told everyone that they’d need to save more, work more, give up more, just to own one. That doesn’t seem to deter people from paying. So raise the price!
The ebay secondary market is probably pretty tiny, and catering to a very small minority of potential customers.
Dave’s babbling about half the initial allotment of launch-window PS3s going on ebay but I don’t imagine that’s going to happen. I’d guess maybe 10% or less.
skedastic: Doesn’t the idea that “there’s a small # of console buyers who will pay anything to have a new console, and there is a limited supply for the launch window” explain everything? Given their willingness to pay and the shortage of consoles you have an arbitrage opportunity. MS’s priorities aren’t to maximize the profit off the console, they’re to build a userbase - and I’d imagine that while selling the console at ebay level prices means you get more profit per console sold but you lock everyone who isn’t willing to pay that price out of the market.
Because the car itself is Ferrari’s sole source of revenue, and it probably costs more than $30k to manufacture one. For console makers, the hardware is the goose that lays the golden eggs. Sure, you could eat the goose, but the eggs have much more potential value in the long run.
I know that Dave thinks Sony can eat the goose and still get their eggs later on, but I really doubt that. If Sony decided to officially launch the PS3 at $1000 (or whatever price eBay would deliver–probably somewhat less than that, if they dumped them all into auctions), a lot of hardcore buyers would still buy them. But I think the average consumer–the bread and butter demographic that ultimately catapulted the PS2’s sales into the tens of millions–would be so put off by the pricing that they’d just give up on the PS3 altogether and buy something else. Sure, the market will support those early, high-priced sales, but at what cost? The hardcore fans aren’t the ones that ultimately drive Sony’s marketshare, and by the time that Sony needs the average consumer to start buying into the PS3 to keep growing their user-base, I think a lot of them will have already moved on.
I read those Slate articles long ago and had a couple of comments. I recommend those articles, by the way, if for no other reason than watching the exercise.
The stupidest explanation came up again and again: Microsoft is holding the price low in order to grab market share and make money on selling games. This is the “cheap razors and expensive razor blades” strategy.
This is too easily thrown away. The console market isn’t as simple as the razorblade market. Without sales, mindshare, and momentum, there are no razor blades.
Your buyers aren’t the only folks you need to convince. You are marketing to everyone when you set a price, consumers, developers and publishers all. The latter two don’t see a penny of the console price. They want the price to be low. They need guarantees that every box you put on the shelf during a launch will fly off the shelf. They’ll be happier if folks have a couple of pennies for games after that happens.
I suspect that reason number four that Mr. Bear pointed out is the primary reason. Folks are pretty price sensitive. How many of you crossed the PS3 off your list after finding about the price? Every person that isn’t a potential early adopter hurts Sony’s chance at dominance. They need to build up a head of steam. If you offer it for a $1000, I cross it off my list, possibly forever. Add to the fact that publishers are watching my shopping list and price sensitivity becomes another beast.
I’ve got another reason. Because of the interesting spotlight thrown on price by both razor customers and razorbade makers alike, no console maker can afford to have the price elasticity of its console so visible to the public eye. Let’s use an example:
Let’s say Sony prices its console at $1500 and it doesn’t sell out. It’s not even close.
So they drop the price to $1000 and it still doesn’t sell out. They sell a few more units, maximizing the amount of consumer surplus they’ve snagged from each customer.
Drop the price to $750. It’s selling better but there really isn’t any momentum behind it. The president of Capcom is on the phone in a panic. Devil May Cry 4 is set to go and you have lots of machines sitting on the shelves. The ship isn’t sinking but everyone is running around looking for leaks. Square/Enix is talking about how exclusives are a thing of the past. You’ve dropped your price by half in just a few months. Every gaming publication is asking when the next price drop is scheduled.
The point is things look bad. Very bad. And you risked your millions and millions of research and a real shot at a crapload of revenue on what? A couple of extra bucks during launch. It just doesn’t make sense.
This makes no sense. The average consumer is not buying launch systems. They never were and they likely won’t start now. Plus, the average consumer doesn’t account for huge numbers of game sales, just one to six games a year, if that. So why cater to them at all with a launch? Who cares? They’re not going to support you. The hardcore, money blowing, gotta have 'em all guy is your target at launch. Launches ultimately have little effect on future sales. Look at PSP for a great example of that. It’s still selling well in the US despite a launch “guaranteed to sell out” that didn’t do anything of the sort.
There’s no place for mass-market consumer thinking in a launch that can only appeal to the high end, niche consumer based on both availability and an already high price. Why set your neck on the chopping block and lose $200 or more per unit when those people aren’t going to buy the thing until it hits something like $200… the ACTUAL mass-market price?
You guys use really faulty logic when you’re trying to dispute mine.
Bull. Sony HAS a head of steam. It’s been built up over two prior console successes that are the biggest successes of all time. They rule this market. They have people begging to get on waiting lists for the PS3.
Your giant post gets thrown right out the window when you look at the real world and the insatiable demand for Sony videogame consoles.
First, I’m not sure if you’ve noticed, but Sony is already running at a higher price simply on the basis that it’s “the best”. They are already pushing the system’s SHEER POWER as the reason you need one.
Second, once people realize that “the best” and SHEER POWER actually mean “pretty much the same as the 360”, things will change.
That helped Nintendo too. A strategy of “we sold a lot last time” isn’t much of a strategy at all. Do you really think Sony has a head of steam with just a few details of a $600 product launch? Of course people are begging to get on the waiting lists. They are only putting 4 or 5 of them on the market this Christmas.
Yeah, I wouldn’t want to address my points either. They kill your argument.
Yeah, that worked for Xbox too.
Tip: I didn’t mean change for the better.
I don’t have to go through a line by line quote and reply to show that you’re wrong. I did it in a simpler post.
Sony absolutely has a huge head of steam called PlayStation and PlayStation 2. Times are far different today than they were when Nintendo launched Super NES. All the genres are mature. Genesis’ success was predicated on an investment in “real” sports games and the US latched on (but not Japan…).
In the big picture PS3 is as powerful or moreso than the 360. To most consumers, it’s THE system to own because PlayStation is synonimous with videogames right now. I realize it’s not in the Qt3 Company Line, in the Groupthink to believe that Sony is going to be a-ok with PS3, but that’s what the analysts believe and that’s what the consumers are proving with their ravenous desire for pre-orders of a $5-$600 unit.
The world is simply a different place today than it was in previous console generations. The Sony brand still rules with an iron fist in consumer electronics and PlayStation is one of their top brands. It would allow them to sell the unit at cost if they were smart.
The economist (Tim Harford) that I linked to above talks a lot about how companies cleverly employ price discrimination – charging more to those willing to pay more, without scaring away the cheap people. Think coupons, or multiple sizes on stuff that’s really cheap to make like popcorn of coffee. I kind of agree that console makers should also try and be clever and extort the early adopters for as much money as they can, but a console launch is under so much scrutiny that it must be difficult. I guess they do kind of stick it to the early adopters when they get the first builds of a new console and have to suffer multiple breakdowns (if the xbox 360 threads on this board are any indication).
The Ferrari counterexample is to show that the argument “because allocation by queuing is fairer than allocation through price” doesn’t fly. You bring up a seperate argument, that the low price is to move consoles, which in turn moves games and such. But as Harford takes pains to point out, this argument makes no sense at all: Microsoft wasn’t churning units out the door, they couldn’t fill demand at the prevailing price. That is, it only makes sense to sell the console at a low price to move units if you actually move units!
Given the recent survey that said people are totally jazzed (jizzed?) for the PS3 over the 360, I’m no longer sure I agree, Charles.
Maybe brand identity does beat all. We’ll see.
The puzzle is that MS could have sold exactly the same number of units at a higher price. So any argument which hinges on the idea that the low price is to sell more units fails.
On its own, this isn’t much of a puzzle. If demand is highly elastic, then we could observe large shortages even if the price is just a little too low. To fix ideas, suppose there are physically one million units available. Maybe at $300, two million people want to buy one, but at $400 only a half-million people want to buy. Making decisions before the fact, MS prices cautiously, but prices optimally in the sense that huge wads of cash aren’t being left for the taking.
But if this scenario held the secondary market price should be somewhere between $300 and $400. So the real puzzle is how we reconcile the $300 price tag with the $750 price on Ebay. The latter suggests that demand is not very elastic, which in turn means MS should have priced higher.
If you consider your insane ranting using 3rd grade economic theory to be logical then I don’t want to know what you would say if you were being illogical.
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No, you did not.
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No need to go line by line. I made two points. Refute them.
Console makers are understandably cautious in an environment where they need to pander to consumers and publishers alike. You price as conservatively as you can. You are selling units but, more importantly, you are selling promises to both parties.
Console makers don’t want to put their price elasticity in the public eye. A rapidly decreasing price is a huge sign of weakness and bad forecasting, a signal that every publisher for the machine is eyeing.