Monday, November 20, 2006

Sony Playstation 3 units see price drops on eBay

The price and quantity of PS3s on the free market (eBay) have both dropped since the Friday launch. Though the Kotaku story doesn't mention quantity, rest assured that fewer and fewer PS3 units are for sale on eBay at any given time. On Sunday, there were over 19,000 units for sale. By Monday, that number dropped to 12,000. The average sale price has also dropped by $800-500 to an average $1,200 or so per unit. I predicted on Sunday that PS3 fans that didn't want to pay a fortune for their coveted consoles would have to wait a month or two to find a PS3 at the retail price. Boy, I was foolishly wrong. By the end of the next week, you will see PS3s selling at $600 or an amount slightly higher. A few sellers will try to compensate by upping the shipping costs to ridiculous amounts to trick would-be buyers who aren't careful enough.

The biggest enemy of the PS3 sellers is the next restock date. No one knows for sure when that date is, but rest assured the marketplace for PS3s will change, for two reasons:

  1. Decrease in market price. As the buyers who are willing to purchase Playstation 3 bundles on eBay for high prices exit the market, there's less incentive to wait in line for 14 hours and sell what you buy: There are fewer buyers competing for the same product, so there are fewer bids on PS3s. During the weekend, you could have easily seen 50 bids on one Playstation 3. On Monday, a more common number of bids was 30. Expect that number to drop in the next few days. The number of bids per system will drop slowly, as new buyers who wish to take advantage of the decreasing market price enter the market.

  2. Another source for Playstation 3 units. Since the market price on eBay is dropping, many potential sellers will stay home and not enter the market. The marginal revenue of the market is slowly decreasing, meaning that each additional PS3 sold nets on average less revenue than the last one sold. Now that the market price is dipping below $1,200, some people will decide that the effort spent is not worth the money.

    Because second-hand sellers aren't entering the market, actual PS3 fans will have greater access to stores stocking PS3s. There is an obvious difference between spending $600 and spending $1,200. As soon as consumers become aware that PS3s are obtainable in retail chains for same-day pickup, second-hand sellers will have to drastically lower prices to compete. Eventually, the profit from selling a PS3 on eBay will reach zero. The eBay sellers will actually see losses: They not only made no profit but spent hours waiting in line and additional time shipping PS3s.

The market is gradually drying up for those who want to make a profit on eBay, but what if Sony sold PS3s for $1,200 apiece? For one thing, the demand for PS3s would be much, much lower. People looking to make a profit on eBay would have to sell for at least $2,000 to make the effort to get one worthwhile. Some consumers would just give up. Sony wouldn't be able to justify a price at $1,200. The market price only exists at that point because of the second-hand market. If twelve hundred dollars was the retail price, there would be no PS3 fans. Not only would consumers not want to pay for a console that expensive, but no video game developer would want to produce games for a platform that risky.

So it's tough luck for Sony, and it's soon going to be tough luck for the people who waited in line overnight to get their hands on a precious console. As people become aware that cheaper PS3 systems exist, consumers will flock to Target and company instead of eBay.

What does this leave for Sony? Low sales. Beyond the PS3 fans, of which there are admittedly a few, the brand name is really the only thing that's going to carry the PS3. Even then, it's going to be tough for parents to think about buying a $600 game console this Christmas. The Microsoft Xbox 360 and the Nintendo Wii are cheaper alternatives to what will otherwise be a not-so-subtle attempt at pushing Blu-Ray on consumers - consumers who probably aren't ready for high-def television and movie discs that cost $25 a pop. (Seriously, who would pay $25 to buy a Blu-Ray movie that would otherwise cost $15 on a DVD?) If Sony decided not to include a Blu-Ray drive, there is no doubt in my mind that demand for the Wii would drop substantially, and the Xbox 360 and PS3 would be locked in a battle for control of the market. The reviews are in, and the advantages of owning a PS3 to an Xbox have yet to emerge. In the meantime, expect the for-profit PS3 market on eBay to evaporate.

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