Friday, December 16, 2005

Why ARE XBox Prices So Low?

At Volokh they raise this question:
At the moment, Microsoft is easily selling out the half-million or so Xbox 360 units (there's no official number) for prices starting at $300 for the basic package. Why doesn't Microsoft price them at $700 instead?

My thoughts:

1. By charging $300 they could also be raising the long term competitve price - The first wave of vidiots (myself included) have a relative inelastic demand for the product and might have paid well up towards $700. If people see all that excess demand at $300, they intuitively feel that $300 is a reasonable price given that the 'competitve' ebay price is much higher. This has the effect of increasing demand. I think Pops felt better about paying $X for the opening day seats at Fenway this year when everyone around at the game us paid $2 or $3X.

Plus when they drop the price to $250 on Feb 1. (my guess, based on various store's return policies), it will seem like a steal.

2. They make their money on games, (and probably the online subscription service) not the console. Don't kid yourself, your Box XCosts $300 now plus $100 or so/month in games.

3. Any publicity is good publicity. "Just How Bad Will The Great XBOX Famine of '05 Get?" newspaper asks.

4. Relatedly, scarcity can create demand - lines outside clubs, full restaraunts etc. If people are willing to wait for it, it must be good right?

5. This being MS, there's a good chance the first iteration won't work. At all. There is a non-zero chance that many will be returned on Dec. 26.

6. Have another piece of cheese Mr. LabRat...

update: A commenter in the original thread reminds us that $300 doesn't really get you that much (1 controller, no game, NO BACKWARDS compatibility, not 'net functionality...

1 comment:

reader_iam said...

I think your points are excellent.

The other thing is, given that it's the game cartridges that generate te profit, you want to hook kids in early and make it easy for them to convince their parents to buy an xbox.

"$300, O.K. But $700 as the base price ? You're out of your freakin' mind, kid."

One the game box becomes part of daily life, then game-buying can pretty easily become part of weekly life. Which is the goal, as you point out.

The earlier every kid can be sucked into a game system (preferably one of his own--so he doesn't interfere with Dad's or Mom's), the sooner the buying can begin ...