08S7C's Economics Blog

ARTICLE! ((:

Hello 7c! since weijian has been beckoning us to play his wii, i think i shall talk abt wii!Months after release, demand for Nintendo's Wii still far outpaces supply July 2, 2007 (http://www.iht.com/articles/ap/2007/07/03/business/NA-FEA-TEC-US-Wii-Demand.php)NEW YORK: By 9 a.m., the line outside Manhattan's Nintendo World store was snaking down the block.More than 100 hopeful Wii owners came from as far as New Jersey — some as early as 6 a.m. with kids and grandparents in tow — to get their hands on the gaming console best known for its wireless, motion-sensitive controller.It's been more than seven months since Nintendo launched the Wii, but the consoles are selling so well that supply still hasn't caught up with demand. You can get one, sure, but be prepared to call around and arrive promptly when the shipments do."I had to get permission from work," said Regina Iannuzzi, 23, in line since 6:20 a.m. on a recent morning. She'd been looking for a Wii, a 25th birthday present for her brother, for two weeks. Every place was sold out.Like sleeping in? Wiis are also available online, but at a hefty premium to the console's $250 (€184) retail price. A slightly used one from an Amazon.com seller called "Hard-To-Find-Stuff" recently listed for $595 (€438) plus $3.99 (€2.94) shipping. Another cost $398 (€293) from a different seller."The PlayStation 1 was certainly a big introduction, but I don't recall any game system more than six months after its launch still having this kind of demand," said Chris Byrne, an independent toy analyst.Back in April, Nintendo President Satoru Iwata acknowledged an "abnormal" Wii shortage. Since then, the company has increased production "substantially" to help meet worldwide demand, said spokeswoman Perrin Kaplan.But Nintendo also has to manage its inventory, said Colin Sebastian, an analyst with Lazard Capital Markets."Unfortunately you can't ask a contract manufacturer to make a million a month, then 5 million," he said.Sony's PS3, which launched within days of the Wii last fall, is readily available in stores and online, but sales have been lagging behind the Wii. Cost could be one reason for this: the PS3 retails for up to $600 (€442).More than 2.8 million Wii consoles have sold in the U.S. since the November debut, according to the NPD Group, a market research company. That's more than double the number of PlayStation 3 consoles sold. And Nintendo plans to sell 14 million worldwide in the current fiscal year, which ends next March."You see it and you want it. Kind of like the iPhone," said Robert Marcus, waiting to buy a Wii with his wife and three young sons.Nintendo's selling point for the Wii has been that it's for everyone: not just hardcore gamers or young men with impeccable hand-eye coordination. Its intuitive motion-sensitive wireless controller lets players mimic movements for bowling, tennis or sword-fighting instead of pushing complex combinations of buttons.Twelve-year-old Gabriel Benitez, in town from Florida visiting his grandmother, stood in line outside Nintendo's flagship New York store."We finally got enough money for it," he said, glancing at his grandmother who was waiting with him. "The last two stores were sold out."Gabriel likes the Wii's wireless controller and the mini-workout he gets while playing a game."I just hate what you have to do just to get one," he said.It's not just kids who want it.Rein Auh, 30, never owned a console, but he decided to buy a Wii so he and his wife could have some fun and get some exercise. He spent $350 (€258) at the Nintendo store on a Wii and some extras. Walking out of the store, he looked back at the crowd of people still waiting."It's kind of crazy," he said. "I mean, it's been 7 months."For its part, Nintendo says demand for the consoles has absolutely exceeded expectations."We are trying to move them as fast as we can," Kaplan said.Demand for video games usually soars around the holidays and tapers off for the rest of the year. Not with the Wii."People are looking at it as something they really want to have in their home," said Byrne, the toy analyst. This means people aren't just buying them as gifts, and the shopping frenzy usually reserved for the holiday season has stretched into the summer.Toys "R" Us gets regular Wii shipments in all its stores around the country, but demand is so great they sell out immediately, said spokeswoman Kathleen Waugh. On the toy store chain's Web site, the consoles have usually been "temporarily not available."On a Sunday morning in Brooklyn's Bensonhurst neighborhood, the Toys "R" Us opened an hour early for Wii buyers only. Though nothing like the bustle of Manhattan, a small line of teenagers, 20-somethings and families formed outside as a clerk handed out numbered slips of paper.Inside the store, like two weeks earlier at the Best Buy across the shopping center's parking lot, the systems didn't even make it to the shelves before they sold out.At some point, of course, supply will catch up with demand. But some analysts don't see this happening until next year."I don't think by the holidays," Sebastian said. "But maybe by the middle of next year, perhaps they can add another production line."_________________________________________________________
This article illustrates many economic concepts. As can be seen by the demand of wii, it is currently seen as a fashionable good, as everyone wants it. Hence, consumers will not be greatly affected by the price. Also, we can see that wii has very few close subsititues. Thus, it is price inelastic, since the rise in price will result in a less than proportionate increase in quantity demanded. Therefore, to increase the producer's total revenue, it should increase its price. However! Nintendo decided to cap the retail price of the Wii at $250 US dollars, which contradicts the concept of price elasticity. This may be because Nintendo wishes to build up its customer loyalty to further differentiate its product from some relatively close substitues (i.e. PS3/ Xbox).To account for the unexpectedly high demands for wii, we can look into the different factors:changes in consumer income, changes in taste and expectations, changes in price of related goods.Basically, wii is seen as a whole new form of gaming as compared to the old Xbox 360 and PS3. Its highly innovative construct offers consumers greater satifaction due to the new realm of gameplay which is very much different from the past. Due to technological advancements, Wii can actually allow one to swing the Wiimote as if playing the real thing, instead of just pressing buttons which is boring. The more enhanced form has probably attracted a larger audience to purchase this good. This gameplay is much more appealing to modern day health-conscious people since it involves the whole body in its more engaging and healthy form. The increase in demand for Wii may be also due to effective advertising and marketing. Furthermore, the price of related goods such as Xbox and PS3,is very high. Thus, consumers will generally turn to cheaper alternatives, which is thence the newer, more innovative Wii!For the supply side of things, we actually see a problem, that is, the producers are unable to produce enough goods to meet the increasing demands of Wii. It is apparent that Wii faces a price inelastic situation in supply- when the demand increases, price increases significantly while the output increases less than proportionate.This can be explained by the following factors: number of firms in the industry, length of the production period, existence of spare capacity. Although there are some relatively close substitutes to Wii, Nintendo is seen as a "monopolistic player"in the gaming industry since Wii is still very much a differentiated/unique product(as mentioned earlier). Since Wii is a new technology, requiring perhaps new raw materials and components, hence, it is not readily available yet and requires perhaps substantial production period. All these will thus lead to price inelasticity of supply, causing the supply not being able to meet the demand.When faced with a shortage(DD>SS), we have to decrease the demand such that the supply can meet the demands (DD=SS) such that we reach a new price equilibrium that is higher. Thus, to alleviate the shortage, what can be done is to increase the price of Wii. Furthermore, since Wii is relatively price inelastic, raising the price can actually increase the total revenue.useful links related to Wii!
http://sg.news.yahoo.com/rtrs/20080424/ttc-tech-nintendo-results-dc-96247d2.html
http://www.straitstimes.com/Latest+News/Money/STIStory_230966.html
http://www.todayonline.com/articles/250122.asp
-HUNGMINGCHOU ((:

posted by deathnote @ 7:57 AM