It’s been over two months since Sony’s PlayStation 5 and Microsoft’s Xbox Series S / X officially hit stores, and the two consoles are still almost impossible to find at major retailers. In the face of this scarcity, many potential players of the next generation have focused their anger on the money changers. These opportunistic resellers buy new systems the minute they become available at retail (usually with the help of automated bots) with the intention of listing them immediately for significant bookmarking on eBay or other third-party sales sites.
These resellers are certainly taking advantage of the situation and redirecting the console stock from players who would otherwise be able to obtain the systems at the manufacturer’s suggested retail price. But some recent comprehensive reviews of online listings suggest that resellers are responsible for only a small number of all new console sales in the United States. Even in a world without money changers, the current demand for the PS5 and Xbox Series S / X would be far exceeding current supplies.
Running the numbers
Self-described Oracle Data Engineer Michael Driscoll did the legwork here, using Python scripts to scrape eBay and StockX for each successful list selling a PS5 or Xbox Series S / X. His analysis of these retail markets provides a fascinating and deep dive into the details of second-hand console sales, and we recommend reading them in full. But headline numbers suggest that some 146,000 PS5 consoles (and about 110,000 Xbox Series S / X consoles) have been sold in these two retail clearinghouses since the systems launched in November.
Driscoll’s approximate and indirect estimates of other retail markets, such as OfferUp and Facebook, suggest 60,000 to 165,000 more PS5 consoles being resold elsewhere online after their original retail purchase. Altogether, Driscoll estimates that the resale market accounts for 10 to 15 percent of the (also roughly estimated) 2 million PS5s that have been sold in the United States so far. The percentages involved for the Xbox Series S / X are slightly lower, but they are in the same range.
Again, a 10 to 15% reduction in the number of PS5s available at retail price is nothing. This represents hundreds of thousands of people who failed to place orders at retail and were forced to wait or pay average resale prices that peaked at up to 260% of the MSRP, according to Driscoll’s analysis. This is not a good situation for anyone involved, except perhaps for money changers.
At the same time, these figures suggest that money changers are not the overriding factor that prevents retailers from keeping these new systems on the shelves.
Imagine that there are no money changers …
As a mental experiment, imagine a world where someone waved a magic wand and made it impossible to resell a console after it was purchased from a legitimate retailer. In that world, based on Driscoll’s analysis, an additional 200,000 to 300,000 Americans by now would have been able to buy a PS5 with a suggested retail price of $ 400 to $ 500. Again, that would be great news for everyone except aspiring money changer (which no longer exists).
But so what?
For the PS5, however, the main problem is not the money changers. Is that there are many more people who want to buy a PS5 than PS5 consoles in the world.
Even with those supplies allocated to Sony’s MSRP, there would still be hundreds of thousands of potential customers clamoring for a PS5. I know this because here in the real world, full of scalper, customers are currently willing to pay an average price of 160 to 200 percent of the MSRP (on Driscoll accounts) for one of the thousands of systems available from a reseller. The only way to do this is if the total demand for the system is still exceeding the total supply (which includes the many resold systems that have already reached the players’ hands, in this case).
In contrast, PS4 resale prices are currently at a median between 70 and 90 percent of the MSRP, according to Driscoll’s analysis. This is what happens when retailers have enough inventory to meet demand. For the PS5, however, the main problem is not one of money changers. Is that there are many more people who want to buy a PS5 than PS5 consoles in the world.
In a sense, nothing could be less surprising. Even the Wii U, which turned out to be a major failure for Nintendo, had widespread sales and second-hand markings in the weeks leading up to its launch. The nature of the console’s multi-year cycle (and the early adopters) means that there is almost always enough pent-up demand for new hardware to account for everything a console manufacturer can produce right at launch.
The question for each system startup, then, is how long this situation will last. For the Wii U, supplies were easy to find on store shelves two months after launch. For the Wii, on the other hand, the scarcity lasted for years, leading to the widespread (and actively denied) belief that Nintendo was intentionally retaining Wii supplies to create some kind of self-perpetuating artificial demand that makes the system seem more popular (or something).
Just do more?
In the case of the new 2020 consoles, supply restrictions seem set to last at least a few more months. Microsoft’s head of investor relations, Mike Spencer, recently told The New York Times that the Xbox Series S / X will have a restricted offer until at least June. And AMD, which supplies chips for PS5 and Xbox Series S / X, also said that it expects supply restrictions to last until the first half of 2021. “It is fair to say that overall demand has exceeded our planning and, as a result, we have had some supply restrictions when we end the year, “said AMD CEO Lisa Su.
Can’t these chip and console manufacturers simply increase production to help satisfy intense demand more quickly? Theoretically, yes, but logistically it is not always so simple. The limited supply of raw materials and suitable production facilities, for example, could greatly increase the marginal cost of raising production rates. In any case, it is difficult to make this kind of change on a dime; hiring new manufacturers and supply lines is a complicated process, especially if you haven’t seen excess demand coming.
Increasing production capacity above the current baseline is also not without risks. By the time you incur the cost and effort of creating consoles more quickly, aggregate demand may have decreased, leaving you with increased expenses and warehouses full of products that are difficult to sell. If you keep supplies stable, on the other hand, you are less at risk, and potential players are still eventually get the consoles you want (unless you change your mind or choose a competitor, of course).
Without increased production, Microsoft and Sony could also simply raise the price of their consoles, pocketing additional revenue from an obviously hungry fan base. From a public relations perspective, however, it would look terrible in a world where hardware prices only drop over time. Still, retailers sometimes try to use a similar trick, forcing customers to buy hard-to-find hardware as part of an expensive package.
So yes, when it comes to lack of consoles, money changers are definitely part of the problem and provide an easy scapegoat when store shelves are empty. But the biggest reason for the scarcity of new consoles is years of pent-up demand that console makers are unable (or unwilling to) meet as quickly as the market would like. As with every console launch, the only way to avoid paying second-hand bookings from money changers is to just be patient.