Saturday, November 25, 2006

Price Gouging for Christmas Toys?

From today's WSJ, an article about a new "crisis": toymakers who are wrecking Christmas by "price gouging" for some toys:

"As the holidays approach, a crisis has gripped America. Stores are running out of toys. Shoppers are waiting in lines for hours, sometimes days, to get items like the Play Station 3. Worse, the 10th-anniversary edition of the Tickle Me Elmo doll is almost nowhere to be found. In many communities, this "must buy" Christmas item for toddlers can only be purchased at a high price -- or it cannot be purchased at all. The going rate for Elmo has risen from $39.95 to $100, while PS3s are now selling for up to $3,000 on eBay. Who's to blame for wrecking Christmas?

Columnist Stephen Moore writes, "The price-gougers, that's who. Congress has investigated oil companies for high gas prices and pharmaceutical companies for high drug prices. Why let the toymakers off the hook?"

Stephen Moore then imagines:

"Mr. Dingell says that he will hold hearings early next year and will ask the CEOs of the Big Three toy producers to appear before his committee. A Democratic staffer notes: "Perhaps if these toy executives didn't command $50 million salaries, they wouldn't have to charge middle-class families hundreds of dollars for their toys."

Ms. Pelosi said that the House will consider enacting a windfall-profits tax on toy producers as part of "our first 100 hour agenda." On a trip to New Hampshire, Sen. Hillary Clinton stated that she would go further and form a commission to investigate the feasibility of a government takeover of the toy industry as a way to slow "the stampeding cost of dolls and computer games and to make toys affordable to every family in America regardless of income."

Lou Dobbs devoted all of his CNN show last night to the swirling toy scandal. "It's just another example of corporate America's war against the middle class," he said. "We are quickly turning into a nation of Tickle Me Elmo haves and Tickle Me Elmo have-nots."

MP: Actually Sony Playstation 3s are selling for up to $20,000 on Ebay -
check out this sale on Ebay for $20,000 + $65 shipping!!, here is another Ebay listing that sold for $14,900.

Actually even though he was writing "tongue-in-cheek," I think Steven Moore has it backwards. The real question is NOT "Why is Sony price-gouging?" but "Why is Sony selling a product for only $600 when the true market value is, let's say $10,000?" In other words, it seems like Sony could actually be more accurately accused of "predatory pricing" or "dumping" PS3s, and NOT price-gouging! The $600 price is obviously WAY BELOW the market clearing price, which then creates the secondary market on Ebay for something closer to the real market price. It seems like Sony is engaging in a tremendous act of charity (corporate social responsibility?) by almost giving away its PS3s this holiday season.

From economist
Steven E. Landsburg: "The curse of thinking like an economist is that you're perpetually baffled by things that everyone else finds completely obvious. Why, for example, is it nearly impossible to get tickets for a hit Broadway show like The Producers? Surely the producers of The Producers are not out to avoid making money. If they predictably sell out at $100 a seat, why don't they charge $150 or $200 or whatever it takes to reduce demand down to the theater's capacity?"

Likewise, Sony is not out to avoid making profits, so why not sell PS3s for the market price, instead of below? Maybe it should cut out the stores and go directly to Ebay?

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