Sunday, November 19, 2006

How to Stop the PlayStation Violence

Just in case you have not heard about the mobs and the shooting associated with PS3 going on sale read PS3 Debuts to Long Lines, Conn. Shooting

People wait in line a long time when these video games go on sale. In effect, the price is too low. So there is a shortage. The number of the PS3 video game consoles that people want to buy at the going price ($500) is much greater than the amount available. Riots and stampedes sometimes break out when things are given away for free. The only difference here is that a price is being paid, but it is still far below the intersection of supply and demand.

To stop people from waiting in line (and encouraging muggers to come by), a much higher price would reduce the quantity demanded. Other products sell every day for more than $500 a pop and there are no problems. The stores should start out selling them at $1,000 and reduce it by $50 or $100 a day to gradually bring them into the market. A few people will buy them the first day at the higher price. But you won't have the lines or the mobs. The stores could even publicize that they will give some of the excess profits to charity. As the price comes down, more people will buy them. But it will be fewer than the mobs we see on the first day now since a few customers will already have theirs and won't need to show up.

How do I know a few people will buy them at such a high price on the first day? The long lines now prove how much people want it. Some will be willing to pay more not to have to stand in line.

5 comments:

champ said...

Professor,
that is a well thought out mechanism to stop the rush. Do you think there is any particular reason they don't price them over 1k upon initial release? I was thinking that maybe they have a price regulation or something. The way I look at it is: people are going to at least 3 fold off the money they initially spent when they sell it on the net. Why doesn't sony just take advantage of it, considering there are people willing to pay gargantuan prices for the console.

Fandel said...

A couple of points..

First, believe it or not, Sony is losing over $200 dollars for every system sold. An independent site added up all the parts, and concluded that Sony will be losing over $200 dollars for every PS3 sold. Sony is actually losing more money selling the $500 20 Gig model, then the $600 60 GIG model, because the added parts of the 60 Gig model don't add up to the extra 100 bucks that Sony is charging.

The reason why Sony has to sell the consoles for $500, and $600 dollars are two-fold.

One, there was heavy retailer pressure involved. In fact, the only reason why Sony made the $500 dollar model was because of heavy pressure from Wal Mart.
Two, third party game developers would have probably cancelled, or delayed their games because the higher the price of the console, the less money that people have to buy games. In fact, third party publishers are already privately angry at Sony because people are not buying any game to go along with the purchase of the PS3.

Cyril Morong said...

Thanks to both of you for dropping in on my blog.

fandel, thanks for that background information. Very interesting.

Champ, they probably don't price it high to begin with because they never thought of it before. And I agree that Sony might as well make the money with higher prices since others are making such high prices on eBay.

It may be a PR problem. That is why I suggested giving some of the excess profit to charity. You don't upset anyone this way. Some people pay a high price initially, but they already are on eBay. Then you avoid the stampedes, shooting and shutting down of stores.

David said...

I think the video game makers like the havoc, really. It helps feed the urge to buy such a system. In other words, Sony digs conspicuous consumption, which is kind of funny because once kids get these systems, they become inconspicuous as they are glued to them, playing the games constantly.

Why that matters is that Sony is not a monopoly; even though they're the only ones that make the Playstation, consumers can choose to go with the Wii (I could buy a PS3 or a Nintendo Wii with 5 games) or Xbox 360.

In a sense, the consumers are paying a higher price, and that's devotion of their time, energy, and willingness to risk endaginering themselves to buy a PS3. Wouldn't you want those kinds of people as customers? I would, especially if I'm gonna charge $50 or more for a new game.

Cyril Morong said...

David,

Thanks for dropping by. I guess you do want loyal customers, but at what price? It seems like this is costly to the stores.

Conspicuous consumption usually refers to buying things that are extremely expensive to prove to other people that you can buy things they can't. If that is the case, then the PS3's would cost alot more in the stores.

But you are going to sell the same number of PS3s at a higher price and consequently sell the same number of games (unless having had to wait in line for a few days makes you want to buy more games than simply paying a higher price-which I suppose is possible). Also, if you seel the PS3's for more money, it could make up for the lower number of games you sell if the customers are less devoted.

More devoted cutomers could simply work more hours on a part time job to make the extra money required to buy a higher priced PS3

This may be a case of monopolistic competition (one of the 4 market structures covered in principles of micro economics). That is a market structure where each company produces a different but similar product and there are low entry barriers. Each company is said to have a monopoly on their version of the product.

Having to wait in line and get mugged is not going to promote goodwill, either. Will a customer become more devoted to PS3 if they got mugged? The article said a Walmart had to close. That does not create goodwill.

It may be a social waste to have to close stores, have people waste their time in lines and have the police come investigate crimes. All of that could be avoided by higher prices