Member-only story
What Can the Playstation 5 Teach Us About Economics?
Who’s winning — Sony, consumers, or resellers?
On November 12, 2020 — in the midst of a pandemic that has locked many people in their homes, Sony launched their much-anticipated PS5. What can the launch of this gaming console teach us about economics? The ugly side of supply and demand.
Originally retailing at $399-$499 ($399 for the digital version; $499 for the disc version), the console sold out in minutes. Now, people who want their own PS5 will have to shell out upwards of $1,000 on the secondhand market, more than double the original price. What went wrong?
What happened here, what can we learn, and what can be done to avoid this in the future?
What happened?
Quite simply, the law of supply and demand worked as expected, and it’s not always pretty when supply can’t meet demand.
Sony: Even if Sony was able to peek into a magic ball to find out the exact demand for the PS5, they can only manufacture so many consoles prior to the release date. In reality there is no magic ball, but they do have a team of forecasters and it’s very likely that they knew they would not be able to meet demand. So why couldn’t they just raise the price to lower demand?
- It looks bad on Sony: If people are already willing to buy Playstation 5s on the secondary market for $1,000 then Sony clearly can raise the retail price. However, this looks greedy — which in the long term will harm the brand’s reputation.
- It prices out customers: There are going to be a large number of consumers who are not willing to pay much more than $499 for a PS5, especially when competitors such as the Xbox series X are retailing at a similar price. It’s in Sony’s best interest to make sure that these consumers will still buy their consoles.
