Introduction
The following paper analyzes the initial release of Microsoft's XBOX 360 gaming system release into the United States and the changes that occurred with the supply, demand and pricing of the product in the months following its release. The social science of economics tells us that supply, demand and price are closely related to one another and have a significant on how much of a particular good is purchased and the rate at which it is purchased by consumers. The XBOX 360 phenomenon is a solid example of the impact that changes in supply, demand and price have on the marketplace and the rate at which goods are purchased.
Supply and Demand and Price
The law of demand tells us that "Quantity demanded rises as price falls, other things constant, or alternatively, quantity demanded falls as price rises, other things constant (McGraw 2004). The XBOX 360 phenomenon that took place in 2005 is a good example of this economic principle at work. Microsoft's XBOX 360 gaming console was released into the U.S. market on November 22nd 2005. The release came after a great deal of advertising and media hype that ensured that the demand for the product would outweigh the supply. Quite simply, there were more consumers wanting to purchase the product than there was product available. The retail price for the gaming system with a hard drive was $399. Many consumers, however, paid a great deal more than the $399 sticker price to acquire the system. On the morning of the U.S. release, retailers across the nation sold out of the product within just a few hours of opening their doors to consumers. In the weeks that followed however, many consumers purchased the unit from sellers on on-line auction sites and even from individuals in parking lots for as much as $1500. The reason for this was that the supply was significantly less than the demand for the product. In some cases, parents who wanted to ensure that their children received and XBOX 360 for Christmas in 2005 were willing to pay well over retail for the hard-to-acquire system. In other cases, video gaming enthusiasts wanted to be among the first individuals to own and play the system. News reports across the nation showed footage of people lining up days ahead of November 22nd in order to secure a place in line at retailers that would have the product available on the release date.
Let’s begin with the theory of Scarcity. The concept of demand is directly relatable to the scarcity of an item. Let’s look at Jackson Pollock’s work for example. If only 20 paintings were available created by Jackson Pollock, there would be a much greater demand than if you could purchase them easily at your local art gallery.
Some of the other main accessories for the Xbox One include the Xbox One Chatpad and the Xbox Stereo or Chat Headset. The Xbox One Chatpad is a mini keyboard that attaches to the bottom of an Xbox One controller, makes typing quick and easy, and is viewable in the dark because of its backlit keyboard. A main staple for voice chat, the Xbox Stereo or Chat Headset, is useful for voice chatting in a game, with friends, or over Skype.
We the consumer would rather pay less for any product that is needed or want. Ultimately we are the reason for high prices as well as low prices. Prices of products do not always stay the same and more popular products have higher prices than less popular products. These fluctuations, high prices and low prices are from the idea of supply and demand. Supply and demand defines the effect that the availability of a particular product and the desire or demand for that product has on price. Generally, if there is a low supply and a high demand, the price will be high (Investopedia). To understand the idea of supply and demand, the understanding of supply and the understanding of demand must be defined. The Law of Supply states that at higher prices, producers are willing to offer more products for sale than at lower prices, also that the supply increases as prices increase and decreases as prices decrease (Curriculum Link). The Law of Demand states people will buy more of a product at a lower price than at a higher price, if nothing changes, at a lower price, more people can afford to buy more goods and more of an item more frequently, than they can at a higher price and that at lower prices, people tend to buy some goods as a substitute for others more expensive (Curriculum Link). In todays economics these ideas are seen frequently in everyday life. The laws of supply and demand are seen in many ways in the company Apple Inc. Each year Apple Inc unveils a long awaited mobile operating system and IPhone. We can also see many aspects of the law of supply and demand in Nike Inc’s Jordan Brand. Jordan Brand has released a number of...
Historically the personal computer (PC) industry has sold its products at reasonably high prices yet garnered only small profit margins. One reason for this is the high competition in the PC industry which led to competitive pricing among producers. Analyzing the competitive environment of the PC industry, it is evident that there is very little barrier to entry in this market. PC's have very low physical uniqueness and are made of standard components that require very little expertise to assemble.
Microsoft targets numerous segments of the population of many countries through advertisements of its Xbox. Microsoft, one of the most successful companies in the world, is using its innovations to take over the machine gaming market. Sony and Nintendo have been the gaming powerhouses for many years now, but are now starting to become overshadowed by the success of Microsoft’s Xbox. As long as gaming machines have been available, teenage boys have been the targets of the companies. One new strategy that Microsoft is using is the targeting of all ages and both sexes of consumers. While other companies continue to stay in the young kids and teenage market, Xbox is revolutionizing the target market of gaming systems.
In Book V of his Principles Alfred Marshall describes what he denominated “the state of arts” of the supply and demand theory, going back to Adam Smith. The assumptions then applied to the matter was that 1) demand comes first, 2) it is up to sellers to adjust supply to demand through production and marketing, a mix where the price is the most important variable, and 3) production takes time. Marshall summarized statement 2 later on into a single phrase: “Production and marketing are parts of the single process of adjustment of supply to demand” (MARSHALL, 1919, p. 181). This set of three assumptions suggests that the basic principles of the supply and demand theory collected by Marshall from the work by some scientists were then laid, requiring therefore only the right mathematical treatment.
We shall apply the Porter's 5 Forces model to examine the PC market and see how forces of competition influence the profitability of the market players.
Elasticity is also prominent to businesses. The price elasticity of demand is very important for companies to determine the price of their products and their total sales and revenue. Newell showed that by cutting the price of the Left 4 Dead game in half to $25 during a Valve promotion, its sales increased by 3000 percent (Irwin, 2009)viii.
As with all markets and their respective economies, having equilibrium is one of the key factors of a successful system. Although most markets do not reach equilibrium, they attempt at getting close. There are numerous methods devised to reach equilibrium, whether they involve human intervention directly or a cumulative decision by all factors involved. These factors may be a seller's willingness to lower overall revenue, or a buyer's willingness to withhold some demand for a certain product. Of course, the basics of supply and demand retrospectively control the equilibrium in the market.
At prices higher than the equilibrium price the quantity supplied will be greater than the quantity demanded and the excess supply would oblige sellers to lower their prices in order to dispose of their output. For example, if price is 40p supply would exceed demand by 110. This situation, illustrated in Figure 11.2, where supply exceeds demand and there is downward pressure on price is sometimes described as a buyers’ market.
Price Elasticity is the measure in responsiveness of consumers to changes in the price of a product or service. The evaluation and consideration of this measure is a useful tool in firms making decisions about pricing and production, and in governments making decisions about revenue and regulation. “Price Elasticity is impacted by measurable factors that allow managers to understand demand and pricing for their product or service; including the availability of substitutes, the consumer budgets for the product or service, and the time period for demand adjustments.” The proper consideration of Price Elasticity allows managers to set pricing such that the effect on Total Revenue is predictable and adjustments to production are timely. The concept of Price Elasticity is employed in the management of commercial firms and government.
Lardener, J. (2010, March 18). A History of Home Video and Video Game Retailing. Retrieved
price as the major decision-making tool for customers (“Global Consumer Electronics”, 2013). This lack of
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
...n the companies will have to decrease the price otherwise the product will not be sold at higher prices and the revenue would not be as large as companies would like to.