Nov 16 2007

Wii shortage threatens to ruin Christmas for all the little boys and girls!

BBC NEWS | Technology | Nintendo warns of Wii shortages
Man playing a Wii game
Looks like Brits dreaming of the Wii from Nintendo may have to wait a while longer this holiday season, as British retailers are finding it nearly impossible to fill customers’ orders. It turns out there is quite a shortage for the hot new gaming system from Nintendo!

“Although we’re receiving regular deliveries from Nintendo, Sony and Microsoft and getting the products onto the shelves as fast as we can – it’s possible that demand will outstrip supplies on some products, for example the Nintendo Wii, which has been hugely popular all through the year,” read a statement from high street gaming specialist Game…

“The Nintendo Wii consoles have proved extremely popular with our customers and have been flying off the shelves whenever we get new stock in,” said a spokeswoman.

It seems like the shortage of Wii’s in the UK should send a message to Nintendo and its retailers: RAISE THE PRICE!! One way retailers have tried to do this is by bundling the consoles with up to three or four games, meaning to take home a console shoppers would have to fork over 300 GBP. This seems like a great strategy for retailers faced with strong demand from customers, given that they are probably not allowed to charge above Nintendos suggested retail price for the console itself.

It is too bad Nintendo cannot figure out how to price their consoles more effectively to avoid such shortages. Given that the Wii is the cheapest of the three main video game consoles, a price hike would seem the logical response to such shortages as that in the UK. So why isn’t Nintendo raising their price? What rational reason might they have for keeping the price low? The Undercover Economist, Tim Harford, wrote an article two years ago about the XBox 360, which at the time was experienced excess demand similar to that in the market for Wii’s right now. Here’s his reasoning for why companies like Microsoft and Nintendo may keep prices irrationally low in times of shortages:

Why don’t companies raise prices when supply is short and demand is frenzied? Leaving aside oxygen and a few other essentials, there is no such thing as an absolute shortage of anything: There is only a shortage if the price is too low. 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? That’s the figure that the consoles are fetching on eBay.

Perhaps the sellouts are supposed to generate free publicity. By deliberately giving Xbox consoles away too cheaply today, Microsoft gets the column inches before Christmas, and that may boost demand and sell more in the long run. If you had put that theory to me last year I might have believed it, but after all the hot air over gasoline prices this fall, no longer. It’s now obvious that you can get just as much publicity by raising prices as you can by selling out at low prices. But raising prices makes money, and creating lines of frustrated customers who can’t get the product doesn’t.

Maybe Microsoft is worried that this would be the wrong kind of publicity, because customers would dislike a price hike. That’s possible, but the publicity is already bad: Many empty-handed customers seem convinced that Microsoft has a secret hangar in Roswell stuffed full of Xboxes that they’ve decided not to release just yet.

In any case, strange as it may seem, even if the consoles sold out at a higher price, the average Xbox aspirant wouldn’t be any worse off: The increased price should be exactly balanced by the shorter lines, reduced aggravation, and greater chance of getting a console. Customers are infuriated by the shortage itself, whether that shortage is expressed in lines (as it is today) or in high prices (as it could be if Microsoft raised them). If Microsoft is going to aggravate its customers, why doesn’t it at least make a buck out of it?

Harford then goes on to share the ideas expressed my his friends in several different universities’ economics departments about why companies like Nintendo and Microsoft don’t raise their prices in times of shortage. If you’re interested in the various theories, click here.

What about you? Do you think the execs at Nintendo are simply ignorant to the laws of Demand? Shortages should send the clear signal that price is too low, and that demand is highly inelastic, meaning that an increase in price should clearly lead to an increase in total revenue, and therefore greater profits for Nintendo. So why do you think they don’t take this opportunity to raise their profits?

If you haven’t seen it yet, check out this excellent podcast by two AP Econ students at SAS about the video game console market! SAS Economists Podcast #6: The oligopolistic nature of the video game console market.

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

38 responses so far

38 Responses to “Wii shortage threatens to ruin Christmas for all the little boys and girls!”

  1. jacqueszhangon 17 Nov 2007 at 5:20 pm

    One of the main pluses of the Wii that I've heard is that it's cheap. Only 250 USD I believe. The fact that it's cheap and still just as fun as the other gaming consoles perhaps grants it part of its preference.

  2. SamueLamon 17 Nov 2007 at 9:28 pm

    Well since Wii has to compete against other gaming companies , they would keep their prices low to attract more buyers. I would think that a low price would attract more people to buy it and get addicted to video games. The games that companies sell aren't cheap and I'm guessing this is where most of their profit comes from. The shortage has people wanting a Wii, which could add a cool factor to the Wii. If you have a Wii and your friend doesn't (because of the shortage), who has a cooler console?

  3. Alex Goldmanon 18 Nov 2007 at 12:36 am

    I think that Nintendo could easily raise their price not only because of the shortage mentioned in the article above, but because it is so innovative. The wiimote, a wireless motion-sensor, is the equivalent to the ipod wheel of gaming systems. If I hear about the revolutionary motion sensing remote, I'd be willing to pay a little for what I perceive to be a cutting edge high tech gadget. I get the feeling that most other people who don't understand technology (which is likely almost every consumer) would also pay a little more for this "super-technology."

  4. Chan Min Parkon 18 Nov 2007 at 2:23 am

    Nintendo could raise their prices a little bit, but as for now, maybe they are looking at the long run. As of now, they probably want more and more people to simply have a Wii. This could give themselves a good image, as if they are the 'world-wide, best' game console. Then, as Sam said, they can make lots of money off their games, which companies sell for a very expensive price and make profits from. They can probably still make lots of money by raising their price, but in the long run, their profits would start decreasing. If people continuously buy it because everyone else is getting it, profits can continuously rise in the long run.

  5. Claire Moonon 18 Nov 2007 at 5:31 pm

    I guess the reason for them not raising up the price is probably because they want their brand name. They want as many people to recognize their game the cheap and high-tech game. When suddenly the price goes up, more an d more consumers might buy some other games and would not think of this product as appealing than before since it isn't distinctive from any other products.

  6. Mondon 18 Nov 2007 at 5:38 pm

    The wii could definitely raise their price, but the higher price may cause it to loose its competitive edge (changes the quantity demanded), making customers purchasing other gaming consoles such as the PS3 and Xbox360. As shown in the podcast no.6, the wii has the highest total revenue out of the three major gaming consoles: Xbox360, PS3, and Wii. The lower price helps it to sell more, which increases its total revenue. The wii is an elastic good, the increase in price causes it to have a lower demanded quantity, affecting its total revenue.

  7. Jessica Ngon 18 Nov 2007 at 7:42 pm

    I think that Nintendo has an advantage of raising their prices in this term of shortage. As customers are pretty much price inelastic towards this product, as Wii is becoming almost like a household entertainment "necessity", Nintendo can raise their prices and gain more revenue. However, this article illustrates that Nintendo does not. Perhaps this could be because they believe that in the long run, lower prices and more customers will allow higher profits rather than higher prices and less customers. But Tim Harford refuted that argument.

    Then I would say that perhaps Wii wants to keep its image, as the product that everyone wants to have, and can afford. This might be one of their selling points. And disregarding it in the long run, will result it economic losses.

  8. emilyyehon 18 Nov 2007 at 8:01 pm

    Maybe its the image Nintendo is considering, thats why they feel that the price shouldn't be considered. Afterall, lower pricing is definitely an advantage in advertisement- Especially during holiday time. If they can gain a large share of the market during Christmas time, maybe the demand will carry through to complement goods in the following year, such as new games!

  9. Jack Loon 18 Nov 2007 at 8:01 pm

    I think Nintendo could definetly raise the price of the Wii by a little bit and make more revenue. However, they have to make sure that the price doesn't increase too much to the point where they lose their competitive edge. The Wii is very popular not only due to its innovative and new game play style, but also because of its relatively cheap price as compared to other game consoles, namely the Xbox360 and the PS3.

    In my opinion, I think that the Xbox360 and PS3 target a slightly different consumers than the Wii. Most games on the Wii are more…friendly? (I apologize for the lack of word choice). They're more kiddish games such as tennis or Mario. Xbox360 on the other hand, featuers fast moving action games such as the famous Halo series or Gears of War that teenage boys or young male adults would be more interested in.

  10. robertwangon 18 Nov 2007 at 8:21 pm

    I think one of the main selling points of the Wii was its low cost (if I'm correct, it came out after the PS3 and Xbox 360 and thus Nintendo knew the prices of those two consoles), which was a smart move on Nintendo as the three consoles can be considered in the same generation, with the Wii being the cheapest, and in my opinion, most innovative of all.

    Certainly, Nintendo can raise the price of the Wii, but I think that would cause a decrease in demand that Nintendo would not want. In a way, this shortage ensures that a good bulk (if not all) of the Wiis produced in the next batch will be sold.

    Furthermore, at the pace Nintendo is creating new gadgets for the Wii, I think that one sly move for Nintendo would be to increase the prices of the gadgets for the Wii, which would eventually add to Nintedo's total revenue as long as the new gadgets are demanded.

  11. Conrad Liuon 18 Nov 2007 at 8:47 pm

    The concept of keeping prices low for consoles, and then setting the prices for its components or supplement goods higher, is not a new idea. Most consoles have used this technique to help sell their products; the Xbox 360, the PS2, the Gamecube…it seems that the Wii is following the same route, albeit with even lower console prices.

  12. Soyeon Yoonon 18 Nov 2007 at 9:36 pm

    I think they do not raise their price because they are worried about customers' complains which they will have to face with if they raise the price. If the customers start to dissatisfy with their products, customers will find other substitutes for the Wii and they will not purchase their product anymore. In addition, they are not monopolistic firms in the industry so they cannot change the price as they want. They are not price makers.

  13. Kathie Leeon 18 Nov 2007 at 10:40 pm

    Wii is not only known for it's advanced techology gadget, but also it's low price. I believe that even if the company did raise the prices of Wii, customers will still be willing to pay the extra amount of money. However, it may not be wise to do so. It would cause aggravated customers and it would also ruin the reputation of its company.

  14. Richard Tuon 18 Nov 2007 at 11:23 pm

    Wii is using price to really compete with the other game consoles. As many people said already, I think Wii is trying to build up their reputation for the company. They could raise the price but I think people wouldn't be as aware and it wouldn't be as hot in the market. Even before it came out, everyone was already talking about it. although the market structure is an oligopoly, i think something as influential as iphone could compete and make barriers to entry less of a factor

  15. Alice Suon 18 Nov 2007 at 11:53 pm

    After watching the podcast about video game consoles, it's clear that one of the main advantages of the Wii is its cheap price, which attracts consumers to purchase it. Based on this fact, we could form the idea that the reason Nintendo is not raising its prices is because they want to keep the "cheap and fun" image of the Wii up so that consumers will keep buying it. However, this disregards the other one of the Wii's advantages- product differentiation in that the Wii is the only console in which you have a remote that you get to use to move around as you play. I think that even if the price of the Wii were raised, the unique qualities of the Wii would be strong enough to compensate for any decrease in demand that might come with a raise in price. Although Xbox and PS3 are considered substitutes to some extent for the Wii, i think that the Wii is unique enough that these other game consoles really do not compare- if a kid says he wants a Wii so he can play tennis with the remote on Christmas morning, I don't think he'll be happy with an Xbox and having to play tennis with just his thumbs and the controller. Thus, Nintendo could raise their prices without fear of substantial decreases in demand.

  16. Christina Huon 19 Nov 2007 at 1:34 am

    The Nintendo people are quite smart- by keeping prices low, they keep the wii affordable to millions more people. And with all the news coverage they're getting about being sold out and all, the message being broadcasted is: "jump on the bandwagon! Wiis are cool! They're so good you probably can't even buy one!"

    Especially with the Christmas season coming around, obviously the Wii craze will drive demand up even more, and it's probably best not to raise prices or many people will become disillusioned and end up NOT buying one after all. Personally, I use my Wii more for finding the temperature and reading news than playing games.

  17. Hansen Guon 19 Nov 2007 at 4:19 am

    Like everyone said, Wii prices can be raised due to the shortage. However, how bad would the PR be if Nintendo, in time for Christmas, decided to raise the prices. The Wii is slated for a huge appearance under Christmas trees around the world. Rather, by keeping prices low and having the Wii sell out, it will have sacrificed some marginal revenue for long term economic profits. Not to mention the news of Wiis selling out is natural advertising that will further solidify Nintendo's Wii as the top console.

  18. Sunny Kimon 19 Nov 2007 at 11:25 am

    Some people are saying Nintendo should not raise the price because wii was known for cheep price and the low price is that attracted so many people to buy wii other than X-box 360 or PS3. Meanwhile, others are saying that Nitendo should raise the price because there are many consumers wanting the product but there arn't enough products. In my opinion, it's okay for Nitendo to raise price at current situation. Since a lot of people are preferring wii to other products currently, this maybe their only chance to disregard their policy of low price and sell the products at a high price. No one knows how long wii will be preferred by people. Since the game console market is pretty competitive and it's hard to predict what's gonna happen in a short period of time, wii should raise the price and make more profits before wii loses interests from people.

  19. Howard Jingon 19 Nov 2007 at 11:52 am

    As everyone says, one of the main reasons that the Wii is such a sought after good is because it is not only high tech, but also very cheap. In comparison to the PS3 and Xbox 360, the Wii can be considered to be an impulse buy, whereas the PS3 and Xbox 360 are more for the video gaming crowd. In contrast the Wii is supposed to be family friendly.

  20. Jeff Yeon 19 Nov 2007 at 5:40 pm

    As the article said, the Wii is the cheapest out of all the consoles. This is probably the reason why everybody is lining up to get the Wii over the other consoles. However, if nintendo raised their prices, consumers might not prefer the Wii anymore, and buy the other consoles. This might decrease the number of consumers by a VERY large amount because now that the main reason everybody wants a Wii is now negligible, people might not prefer it anymore. Also, the article only talks about Wii sales in the UK, not anywhere else. It doesn't tell us how sales everywhere else are going. They might not be as desired in Asia or Africa, so they can't raise prices.

  21. Rebecca Sungon 19 Nov 2007 at 6:24 pm

    Nintendo could raise its prices of the Wii. I think the lower price compared to the other popular game cosoles is part of the attraction of the Wii, as Jeff said. Along with its innovative design of the wireless controller and interactive game play, the lower price attracts consumers. If the price is raised, I think that it should not be raised higher than the other two consoles; if it is, gamers might be more attracted to the other two game consoles making it more difficult for Nintendo to compete than it is now, with it having the lowest cost of the three.

  22. Jenny Kimon 19 Nov 2007 at 7:41 pm

    Since the demand for Wii is more than the number of Wii supplied, Nintendo should incrase the price of Wii. This can't hurt anyone since the Wii was cheaper than the other games in the first place, so the consumers would be paying the equal amount of money as they would pay for other games. Nintendo woul definately earn more profit if they raise the price of Wii since the demand for it is very high. People will still purchase the Wii even with higher prices because it is differentiated from the other game products.

  23. Kristie Chungon 19 Nov 2007 at 8:16 pm

    When compared with the other game consoles, the Nintendo Wii is significantly cheaper; the lower price does attract more people. However, the price is not the sole reason people want the Wii. People also like it for its interactiveness. Therefore, I think even if Nintendo increases the price for Wii, people will still want to buy it…

  24. Trevor Sunon 19 Nov 2007 at 9:34 pm

    That is kind of weird that the Wii is selling like hotcakes and the price still remains the same. I guess if they increased the price it would change the consumer's expectations but the Wii is so popular that demand has become so inelastic the price change wouldn't change a thing; especially around this time of year. Either Nintendo is trying to make a point or they have something up their sleeves…puzzles me but whatever.

  25. serenatuon 19 Nov 2007 at 9:53 pm

    Comparing the Nintendo Wii to the Xbox 360 or PS3, it's a lot cheaper. It has the newest remote that you actually are doing something when you play the games, instead of just sitting there holding a remote, pressing the buttons for hours. Nintendo Wii's price and its most hi-tech functions brought in tons of profit for them. I think if the Nintendo raise the price a bit for the Wii, they will get more

    revenue but not lose their consumers at the same time.

  26. Takaon 19 Nov 2007 at 10:22 pm

    For the Wii, publicity could be one thing in which by raising prices, they don't want to get the negative vibe from their customers. Plus maybe they're already making huge profits from just charging at that specific price. Definantly nintendo wants to dominate the console market in which customers will come fleeing to them instead of other console makers. Another thing is they could be charging low prices so people will buy the add-ons available for the Wii. The fishing rod attatchment, the gun attatchment, sports packs and so on. Through this they could be gaining even further profits from the add-ons yet still allowing customers to feel a sense of increased satisfaction.

  27. Jo Loon 19 Nov 2007 at 11:44 pm

    Nintendo faces a dilemma here; either it raises the wii's price, thus risking the chance of decreasing demand, or not change the price. If the price is not changed, Nintendo would not be capitalizing on the huge popularity of the Wii. Because Nintendo has made much more profits than Microsoft or Sony based on their 'new generation technology', it would hurt to raise the price a bit to see how consumers would react. If consumers back off and substitute the Wii for XBox or PS3, Nintendo will then easily be able to bring the price back down and resume original profits. I have a hunch that the reason why Nintendo's price for the Wii is so low is because they have something planned for the future. They are aiming to develop a sort of brand loyalty to Nintendo. Any new console Nintendo comes up with would immediately have huge sales because of their previous success with the Wii.

  28. James Tsaoon 19 Nov 2007 at 11:49 pm

    Well, the fact that the Wii is the CHEAPEST console out of XBox360 and PS3 gives it significant publicity and good reputation over the other two. Even though the low price creates shortages, the 'shortage' prolongs society's preference towards the product because it shows that they are not getting enough of the product. The market life of wii, in this case, can be significantly lengthened because the low price gives it such good attribution

  29. judychenon 20 Nov 2007 at 12:11 am

    I think Nintendo made a clever decision. As long as the price of wii keeps low, more people would be willing to purchase it if it is now facing the shortage. Wii is very innovative in the market now. But if it raises the money up, less people would buy it since they might not be able to afford it. In order to attract more people to buy it to achieve the larger total profit, the price of wii should keeps low.

  30. Jessica Chiangon 20 Nov 2007 at 12:28 am

    I think that the producers should raise the price of the Wii. From what I hear, the Wii is cheaper than other gaming devices. Perhaps the producers shold raise the price, but still keep the price slightly below the price of other devices, such as the Xbox 360. People will still buy the Wii although it is more costly because it is a differentiated product; no other gaming device I know of has a motion sensor like the Wii's. The Wii also seems like a more age-friendly and gender-friendly game.

  31. howardlinon 20 Nov 2007 at 2:43 am

    It's very intresting. In one of the articles that i've read about the Wii PS3 and XBOX360, one economist said that the shortage of wii would increase the demand for the other two machines, ps3 and xbox 360….

  32. Jonathan Lauon 20 Nov 2007 at 1:40 pm

    After reading the article, it now makes sense why Nintendo is not increasing the price of the Wii, even though there is clearly a shortage of the product. It seems like Nintendo is looking into the long-run with this innovative and break-through gaming console. Nintendo wants to keep prices low so that more customers will buy the Wii. Even if there is a shortage, consumers will still wait for it to come out because the Wii is just that cool. The goal for Nintendo however is not to make money simply from the purchase of the actual console, but from the highly-priced games that complement the Wii. As can be seen, in the long run more Wii consoles will be owned; thus, more games will be bought and the more total revenue Nintendo will make.

  33. Annie Sungon 20 Nov 2007 at 4:49 pm

    The Wii indeed has an advantage for being relatively cheaper than the other consoles, so while they should still maintain this position, I agree that Wii should increase its price slightly for a chance of more revenue. However, if they maintain their shortage, and people still line and wait around for their Wii, it further emphasizes their success and high demand. I suppose this would mean better PR for the console…if they still need any.

  34. kevinhuangon 20 Nov 2007 at 7:03 pm

    The Wii would obviously run into shortage problems because of how interactive players can get with the games that are manufactured for the Wii. By setting a low price, they gain a competitive advantage over other competitors, but if they raised their prices right now, I would think that people would notice and not buy so many. If Nintendo really wanted to make profits they should have done as Apple did for the iPhone, by selling at high price at first, then lowering it after a certain amount of time so they can price discriminate.

  35. Cassy Changon 20 Nov 2007 at 10:10 pm

    I think Wii is trying to reach as many consumers as possible so that a brand loyalty may develop, especially amongst children. Different versions of the game in the future will hold an advantage. I personally think what apple did with the iphone angers consumers, it's too huge of a price change that the consumers know how much profit the company is getting…that's never a good feeling. But with the Wii, it's at a fairly reasonably price and as more and more people buy it, word will spread and it's like advertisement. So in the long run, the Wii will succeed in dominanting the market.

  36. Drew Venkatramanon 20 Nov 2007 at 10:55 pm

    Because of the low price, of course nintendo will sell out of the Wii consoles. The intersting side of this is now, nintendo seems super popular and the limited supply makes the Wii seem like a great gift for the holidays, and it is almost becoming somewhat of a status symbol, if someone can get a Wii, then they are considered to be popular! This shortage will turn out to help nintendo in the long run if run out of products

  37. Caleb Liaoon 27 Nov 2007 at 9:04 pm

    Nintendo's not going to get a bad rep like Microsoft. Probably because their games are nowhere near as bloody as Microsoft's, but in any case this shortage is beneficial to Nintendo because they now have an advantage as they can work in new products with greater hype because of the customer satisfication with the wii's.

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