Xbox economics: revisited
Slate's "Everyday Economics" columnist Tim Harford has returned to further discuss the 360 shortage and Microsoft's response to it. His basic query is, "Why doesn't Microsoft raise prices temporarily from the current floor of $300 for a basic console? Why doesn't the company auction them all on eBay, where consoles are currently reselling for $700 and up?" We responded to his original column and apparently weren't the only ones.
The writer's friend, an economics professor at George Mason University, explained, "Very few people really are willing to pay $700 for an Xbox. Contrary to what you might expect, long lines are perfectly consistent with customers who refuse to pay high prices." Harford elaborates on this theory concluding, "The answer may be that it is gamers who are acting irrationally. Very few people resell their consoles despite the high auction prices. Having grabbed a scarce console, gamers only think about using it rather than profiting from its resale. As a result, only a few consoles are up for sale and only the most desperate buyers compete for them. If more people put their consoles up for auction, the price would drop." Sounds like Harford got it right the second time around.
