Update 3: although there are still rumours of a shortage a few days later, people who have analysed the numbers seem to have concluded that Apple still has iPhones for sale. Here's Forbes dismissing rumours of a shortage as hype. Here's Corey Spring at Newsvine analysing sales on eBay and discovering that 52% of iPhones on the site didn't sell and the average profit on the units was $34 or 5.6%. It's tempting to dismiss tales of $700 sales as anomalies, since the overall trend still argues against a shortage.
Original post: According to a couple of source this morning (Buzzmachine, Mashable) while the iPhone sold 500,000 units over the weekend it didn't sell out. That's bizarre. More fool, perhaps, the guys sitting outside Apple stores for 100 hours (Valleywag) and the guys selling places in line for $500 (PaidContent)...but perhaps not. Hot new gadgets so often sell out we think of it as normal - normal enough that some of us will queue for them for 100 hours to be sure of getting our toy. The Wii is still hard to find (Nintendojo), seven months after launch. Why no shortages for the iPhone, the most hyped technology of 2007?
Economic theories for the repeated Xmas debacle where the hot toy of the year sells out are complex and varied. (Remember, the economic conundrum is not that Xboxs and Furbys predictably sell out due to a spike in Xmas demand but that retailers don't raise their prices to capitalise on this.) My friend Tim Harford discussed this problem here and here at Slate in response to the Xbox famine of 2005. He reached the conclusion, via Alex Tabarrok (follow the link to Alex's supply and demand chart to get this at a glance), that retailers don't raise their prices because buyers are very price sensitive and that even a small rise would increase revenues less than it decreased demand.
This explanation for annual Xmas sell-out of the hottest toy explains the facts, but I worry that it leaves a gap where retailers might have increased their revenue by auctioning off at least some of the Xboxs/furbys but didn't. I think I may have found a better explanation.
The answer I like best to the Xbox (etc) shortage comes from Robert Cialdini
who echoes and expands on the third suggestion from Tim's second Slate article referenced above. He argues that retailers are setting the price of Xboxs low so as to sell additional units of something else. Retailers know that every
Xmas parents will promise their children the hot toy of the moment - a
Furby, an Xbox, whatever. When there's a shortage of them at Xmas the parents who miss out buy their kid(s) some equivalently expensive
substitute toy for Xmas day, then buy the Xbox they'd promised as soon
as more go on sale. The store sells two things of roughly the same price to a customer who only wanted
one. Simplify wildly for the sake of the thought experiment and say half the people who wanted an Xbox miss out because they were too far back in line and buy some other toy instead, the store has increased its revenues from the Xbox line by 50% (and slightly flattened out some otherwise bothersome seasonality in its revenues). There's no way, pace Harford and Tabarrok's assumptions about price elasticity, they'd have been able to raise the price of the Xbox by that much without losing more in customers than they gained in revenue.
So...why no iPhone shortage? Perhaps because Apple is both the supplier and the retailer, and Apple stood to gain no incremental sales from lowballing the price (also known as restricting the supply). iPhone buyers who can't get an iPhone can't just buy another phone from Apple for now and then an iPhone later. At best they go down the street and buy a different (lesser) phone from someone else, making a mental note that when that one-year two-year(!) contract run out they'll look for an iPhone again. The hot toy of the moment sells out when retailers are using it as a hook to get people they know will buy something now and a specific thing as soon as they can into the store. Apple won't run out of iPhones because Apple is both the producer and the retailer of just this one phone. No-one who can choose the price stands to benefit from a shortage.
Update2: in comments, Noah Brier points out that the AT&T stores selling the iPhone are running out though. Here's a news story corroborating this. That sounds pretty consistent with my theory.
Update 1: Paul Sweeny points out CellSwapper, a service that gets (US) cellphone users out of their old contract and into a new, short-term, one. Umair points out the people have already found ways around the 2-year contract by, err, pretending to be a lot poorer than they really are. Would we have seen iPhone shortages if this information had been widely known by potential buyers? I think it's more likely.
Recent Comments