PriceSCAN Blog

Sony has been counting on the excitement over the much-delayed PS3 to speed acceptance of Blue-ray before Toshiba's HD-DVD gains traction (see "Blue-Ray Vs. HD-DVD: Lock-In, Co-Existence, Or Irrelevance?"). To this end, Sony intends to make PS3 versions of its most popular games available with the console's release. What will not be so readily available is the PS3 itself. Sony says the November launch will consist of a remarkably small two million units worldwide. Coupled with the high price point, one has to wonder if Sony is putting itself at a competitive disadvantage just when it most needs an edge.
A little theoretical aside: the economist Robert Giffen hypothesized that, in rare instances, the demand for some goods actually rises with price. But Giffen goods are generally inferior but necessary items for which there is no close substitute and the purchase of which takes up a large percentage of income. Think poor foodstuffs during famines, or perhaps petroleum in a shortage. Even with the small launch shipment number, the PS3 doesn't seem to qualify, does it? Alternatively, it might be argued that there's some prestige in buying a good at a premium price – a "Perrier" effect, if you will – that drives demand up with increased cost. Does the idea of dropping a couple of extra c-notes for the PS3 make this console more desirable to you?
With this pricing strategy, Sony will have to rely on the superiority of its technology and content. Better tech failed to secure Betamax's dominance for Sony, and content fell off as Beta faded versus VHS. Time will tell if a similar fate awaits Blue-ray, but Giffen's rara avis and Perrier aside, its hard to see how the PS3's high price will help.