Supply and Demand - Shortage of Microsoft’s Xbox 360 Gaming Console

The following essay will summarize and analyze the effects that ensued the shortage of Microsoft’s XBOX 360 gaming console during its initial release into the United States. Our textbook teaches us that the relationship between the supply, demand and price (of a product) to one another have a direct correlation to how much of a particular good is purchased and the rate at which consumers purchase it (McConnell, Brue, Flynn 65-67). The phenomenon behind the shortages of the XBOX 360 exemplifies how changes in supply, demand and price impact the marketplace and the rate at which goods are purchased.

The law of demand is defined as “other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls” (McConnell, Brue, Flynn 55). The XBOX 360 phenomenon of 2005 illustrates this economic principle perfectly. The release of Microsoft’s XBOX 360 took place on November 22, 2005. The incredible amount of media hype and advertisement of the XBOX 360 guaranteed that its demand would outweigh the supply. There was simply far too great of a demand for the product in comparison to its limited supply. When the XBOX 360 was initially released the premium gaming console (contains a wireless controller, hard drive and cables for high definition TV’s) retailed at $399, however, many consumers paid a much higher price than the $399 sticker price to attain the system. The morning of its release, retailers throughout the nation sold out within only a few hours of it being made available to the public. Consumer’s desire for this gaming console was so high that “by midafternoon, one buyer was so eager to own one of the new systems they paid $5,100 for a hard-drive enabled machine and a copy of ‘Need for Speed: Most Wanted’” (Morris 1). In the weeks that followed, countless consumers purchased Microsoft’s latest gaming console from sellers online at various auction websites such as eBay for prices ranging as high as $1,000 to $4,000. These results were incurred due to the supply being significantly less than the demand for the product. The cause of these absurd price markups (that were well above retail price) stemmed from things such as parents wanting to ensure that their children received an XBOX 360 for the holidays in 2005 and in other cases, video game enthusiasts wanting to be among the first individuals to own and play Microsoft’s highly touted new system. There were numerous news reports of people camping out in front of stores days in advance of the XBOX 360 release. This type of desire and devotion to attain said coveted device continued throughout the holiday season and led individuals to pay outrageously high prices in order to obtain it.

As the months went on, demand of the product began to hit a steady decline due to a couple of different reasons; firstly, the majority of gaming enthusiasts who wished to first own and use the product had already acquired a system for themselves, and secondly those who wished to purchase the gaming console as a gift for the holidays were no longer in a hurry to do so because the holiday season had already come and gone. These two changes are what shifted the demand (not necessarily an increase in supply), which in turn, led to a decrease in the price of the XBOX 360. As more and more time went on, the end of the phenomenon began to approach. Microsoft leveled out the supply and demand relationship by having plenty of its gaming consoles readily available for purchase. The unit is still