Following the American Psychological Association’s Guidelines
Educational Institution
SUPPLY AND DEMAND FOR PLAYSTATION 4
Sony’s Playstation 4 (PS4), sold at $400 during its launch in 2013, was a massive hit with its 4.2 million units sold at the end of the year (Forbes, 2014). Sony’s PS4 outsold its closest competitor, Microsoft’s Xbox which also launched that year by a margin of about 1.2 million units at a higher retail price of $500 () .In this exercise, we look at this product and analyze the demand and supply dynamics revolving it.
Demand and Supply Schedule
We draw a hypothetic schedule and demand for the PS4, as follows. Then we map out this schedule in the graph illustrated below. The graph shows the value marks which detail the corresponding demand and supply given a particular price. At zero price, demand is very high while Sony will start to supply the product only at $100.
A simpler graph illustration is shown below and will be used to explain the succeeding discussion on supply and demand dynamics involving the PS4. The equilibrim quantity is 4.2 million units at the equilibrium price of $400.
Shift in the Demand for PS4
- A change in the price of related products, namely its closest competitor, Microsoft’s Xbox One, may result to a shift in the demand for PS4. An increase in the price of the Xbox One will make PS4 more attractive to consumers, even as tech magazine reviews have raved about the PS4 as a superior product (Usher, 2014).
- The possibility of increased prices (inflation) can lead to a shift in the demand for PS4, reducing the demand for it as consumers move to buy other products because of income adjustments (Boundless, 2014). The PS4 caters to a select market however and because of its amazing product features and advertising, demand for it in its market niche is sticky; people appear to want to buy it at its retail price.
- Poor advertising can lead to a shift in the demand for PS4, but as shown in 2013, the demand for PS4 has been tremendous so that Sony had problem coping with the orders as there has been tremendous interest and feedback from the market. Given that the PS4 was launched late in 2013, increased advertising will be to its benefit and increase the expected demand, actually shifting it upward.
- An increase in the size of the market because of changing demographics will lead to a shift in the demand. As Sony opens new markets globally, we will expect demand to increase. According to Forbes (2014), the PS4 has been sold in 48 territories while the Xbox One launched only in 13 territories.
- The PS4 is a luxury gadget, like the Xbox, so it will be affected by changing socio-economic conditions of its market. As incomes go up, demand will likewise increase and it will be affected as incomes go down. Of course, in its markets with some economic recovery going on, the demand for the PS4 is rather sticky and its manufacturer is hard put to serve the heavy demand in view of its relatively attractive price compared to its closest competitor.
Shift in the Supply of PS4
- Changing technology is a factor in the production of goods, and obsolescence is always an issue. Technology affects or even dictates the supply of a techy gadget like the PS4. Improved production methods will allow more PS4s to be produced and that will shift the supply.
- The prices of inputs to the production of the PS 4 can cause a shift in the supply. As inputs become more costly, a producer might be forced to cut back production and drive the price of the product upward. In the case of the PS4, the industry is bent on achieving cost-saving measures and Sony is keen on exploring to make its product cost-competitive in order to undercut its competitors in the gaming console market.
- Supply chain issues will affect the availability of the PS4 to consumers, especially in the face of supply problems already being faced by Sony early on its launch of the PS4. Lack of communication with its upstream supply chain allies which will delay shipment of thePS4 to consumer markets, poor relations with retailers can affect the supply level of the product (Techland, 2013).
- The supply of PS4 may shift in response to changes in the demand for it, for instance when expectations or preference will cause buyers to buy more and that will put pressure for supply to increase.
- Competition can shift the supply curve of PS4 as increased players swamp the market with more products and more choices for the consumer.
Scenario Analysis
When supply decreases (due to change in technology for instance) and demand increases (incomes are higher), we see that a new equilibrium is set. We expect the price of PS4 to go up definitely as reduced supply means shortage and will push prices up while increased demand from consumers must contend with short supply. Quantity may clear at a higher or lower level than previous depending on the scale of the demand and supply adjustment.
Demand may decrease due to changing preference or if the Xbox One increased sales at the expense of PS4 when it lowers its price. Supply may increase because of technological improvements. When this happens, we see a higher quantity and a lower price where the market will clear. Prices will be driven down by dampened demand coupled by increased production.
Depending on the scale adjustment, that is by how much supply or demand changes or shifts, we might see a higher or lower equilibrium price. We expect quantity to be higher regardless as increased demand will increase consumption of PS4 and increased production will lead to more supply of PS4. If supply change is greater, the price may lower. If demand shift is greater, the price will go up
Demand can decrease because of a change in the price of substitute goods (Xbox One lowers its price) while supply can decrease because of an increase in the cost of inputs. We will expect lower quantity while price may end up lower or higher depending on the net effect of the supply and demand change. The price may go lower or higher or even stay the same but quantity will adjust downward.
BIBLIOGRAPHY
Bedigian, Louis. (2013). PlayStation 4 Units Could be Scarce as Sony Falls Behind Schedule. Benzinga. Retrieved from http://www.benzinga.com/news/13/05/3561189/playstation-4-units-could-be-scarce-as-sony-falls-behind-schedule.
Boundless.com. (2014). Introducing Supply and Demand. Economics. Retrieved from https://www.boundless.com/economics/introducing-supply-and-demand/demand/market-demand/.
Forbes Online. (2014). Why Sony's PS4 Is Crushing Microsoft's Xbox One In Sales So Far. Retrieved from http://www.forbes.com/sites/insertcoin/2014/01/08/why-sonys-ps4-is-crushing-microsofts-xbox-one-in-sales-so-far/
Play Station Universe. (2014). PS4 demand far outstripping supply, says Sony - new stock on a weekly basis. Retrieved from http://www.psu.com/a022296/PS4-demand-far-outstripping-supply-says-Sony---new-stock-on-a-weekly-basis-.
PS4 Daily. (2014). PlayStation 4 supply levels may not meet demand for a few months . Retrieved from http://ps4daily.com/2014/01/ps4-demand-and-supply/.
Time Tech. (2013). Is Sony’s PlayStation 4 Really Outselling Microsoft’s Xbox One 2-to-1? Who Knows. Retrieved from http://techland.time.com/2013/12/24/is-sonys-playstation-4-really-outselling-microsofts-xbox-one-2-to-1-who-knows/
Usher, William. (2014). PS4 Supply Can't Keep Up With Demand, Says Sony. Retrieved from http://www.cinemablend.com/games/PS4-Supply-Can-t-Keep-Up-With-Demand-Says-Sony-61865.html.
