12/02/2005

What's up with Xbox?

As I was home over this past Thanksgiving break, all the rage was surrounding the release of the new Microsoft Xbox 360 game system, and while there was a lot of hype, many hopefuls went home empty handed due to Microsoft's limited supply of systems. Today I read an article from the BBC news commenting on all the craziness that occurred today for the UK's release of the the new Xbox. Similar to the U.S., excited Xbox fans waited hours for the chance to get a system. The article also commented on something that I had noticed when I was home for the holidays, which was the amazing markups of the new system on Ebay, etc. When I was home, people were bidding on a new Xbox for well over $1200! To me, it was crazy that someone would put up that kind of money, for a game system, but it also got me wondering, why was Microsoft being so limited in the number of systems they were distributing? As I think about it now, I am wondering if they are trying to artificially drive up demand. I mean, what's their strategy? To me, it remains a true mystery!

4 comments:

Tom said...

I have wondered what the strategy is myself with these game system producers. I would tend to agree that they limit the supply just to create a demand, but it is still a mystery what their strategy really is.
The great thing that I've realized since studing economics is that the surprise of what people pay has become not so surprising. The price people are willing to pay is just a reflection on how much they value the item.

Dr. Tufte said...

It's possible that Microsoft did this intentionally. But I can't be sure - rollouts of hot new technology often have bottlenecks from the production side that cause price fluctuations.

Matthew said...

Dr. Tufte said that Microsoft may have created a shortage intentionally, but he can't be for sure with bottlenecks. I agree that yes, nothing is for sure, but I still think the shortage was definitely intentional. Microsoft is capable of forecasting and getting the capital to fulfill demand – this isn't their first Xbox roll-out. By lowering supply, they increase demand and make the 360 an “elite” system that not everyone can have.

Dr. Tufte said...

Three years down the road, there should be stuff in business publications about Microsoft doing this intentionally if that is in fact what they did. The absence of this points to supply difficulties.