Friday, September 04, 2009

I Read the News Today, Oh Boy.

07.07.07 marked the Live Earth festivals to combat Climate Change. 08.08.08 saw the opening of the Olympic Games in Beijing. 09.09.09? This date, my friends, belongs to Beatles fans. The number 9 has long been associated with the Beatles, specifically John Lennon. For this reason, this date was chosen to release the newly re-mastered Beatles catalogue and the video game "The Beatles: Rock Band."

Since my primary interest is getting my hands on the re-mastered box set, I figured I’d just pre-order it on Amazon so it would arrive straight away. However, I was quickly thwarted by this message indicating that Amazon was out of stock. After further investigation, I found their explanation for this lack of inventory:

“Collectible box sets take time to manufacture, and initial quantities must be determined well in advance of the product release date. In this case, demand has far outstripped initial supply…While we predicted that the box sets would be highly popular items, we had to work with the inventory allocated to us by the manufacturer.”

No problem, I’ll just call my local Best Buy; they should have plenty in stock since it’s a large store in a big city, right? Wrong. The manufacturer allotted Best Buy just eight copies! At least they could have kept with the theme and given them nine!

While it’s possible that the manufacturer just underestimated the demand and is doing all they can to make more and get it into stores, I’m skeptical that they could really be so off the mark. The Beatles have sold nearly a billion records worldwide, their albums hold four spots in Rolling Stone’s all-time top ten, and come on… they’re THE BEATLES.

A more plausible explanation is that this may be a deliberate shortage, designed to make headlines about its popularity and stir up new eventual sales as more of the product is slowly released into stores and onto websites. Tim Harford discusses other possibilities in this Slate post, in reference to the Xbox 360 shortage of 2005.

Discussion Questions

1. Can you think of other examples of supply shortages which successfully generated press?

2. The Beatles catalogue is not available digitally largely due to their dispute with Apple Computer over use of the name “Apple” in the music business; this is because the Beatles had a corporation called Apple Corp (pun intended). How might the fact that the music is not available digitally impact their CD box set sales?

3. How might the shortage of Beatles box sets affect the resale market for this item on websites like eBay, Craigslist, etc? Does this “scalping” of sets achieve allocative efficiency?

4. How does patience (normally referred to in economic models as the parameter β) affect the profitability of this approach to releasing a collectible set?

5. Despite the shortage for the Beatles box set, the price for the good seems relatively consistent across retailers. Why might the manufacturer want to keep prices constant over time? How could this be profit maximizing?


  • At 10:43 AM, September 16, 2009, Blogger doc said…

    The counterpart to the "contrived shortage" question is the "deep-discounting" issue. Why are new releases (of books, of CDs, of DVDs) by popular authors, popular musicians, or of popular films, so deeply discounted? (For example, Dan Brown's "The Lost Symbol" is available on Amazon For $16.17, discounted from a list of $29.95...more than 40% off).

    Deep discounting of initial releases will, of course, stimulate demand (and sales), thus increasing the "buzz" around these items. But is it really a profit-maximizing strategy? How price elastic really is the demand for Dan Brown's new book? Or Robert Parker's soon-to-be-released Spenser novel ($14.55 on Amazon; $26.95 list)? Why, for that matter, is Amazon selling the stereo version of the Beatles box for $179.99 ($259.98 list; a 30% discount), with a shipping time of 2-4 weeks?

    Are the contrived shortages and the deep discounts related strategies?

    I wish I either knew the answer to all this, or had some clear thoughts about how to investigate these issues...another publication would be sort of nice...


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