Why the Wii is in short supply: Nintendo plays it a Wii bit cautious

[Avinash_Tyagi]

ymeaga1n said:

Avinash_Tyagi said:
The person who wrote this article doesn't really understand Economics and Buisness, now granted Nintendo doesn't want to have excess supply, however they do not want to have a shortage of this level, and how do we know, it comes down to the fact that the console market operates in a state of monopolistic competition, in which product differentation is key to profits, and where a firm's ideal level of production is where Marginal cost equals Marginal revenue (marginal revenue being steeper than the normal demand curve), We know that Wii's production is no where near that level since at that point it would only be able to sell more product by lowering its price, the fact that there is large unfulfilled demand, even at higher prices, as evidenced by Ebay sales shows that Nintendo would not have to lower prices in order to sell more, indicating that production is not at the optimum level for Nintendo and that it is losing potential profits, something not good for Nintendo, only someone not versed in economic theory would consider this a good thing for Nintendo

We have an economist amongst the gamers! lol Everything you said is true. But it depends on how much of a shortage it is. If Nintendo is producing near its equilibrium quantity, it's still is generating a lot of revenue. Hype can be advantageous. Economics is pretty clear-cut, doesn't really factor in something like hype. What they should do is increase the price of the Wii to bring the quantity demanded down to what they're supplying, then they would be cruising :).

 BTW, CNNmoney reported that they will not be increasing production again. http://money.cnn.com/2007/11/27/technology/bc.apfn.us.holidaysales.ap/index.htm?postversion=2007112719

Yeah but the massive demand for the Wii, even a year after launch shows that they are no where near the monopolistic equilibrium, hype is important to a point, but all you need for hype is to have demand that sligtly exceeds supply, right now the lost potential profits outstrip the benefits from hype

 Not in the short run they can't but in the long run factors are variable, not fixed