PS5 resales might not be as profitable as scalpers think
The 9th generation console launch debacle is probably the single biggest gaming story this year. Both the PS5 and Xbox Series sold out within seconds of going live on retail sites. Largely due to botnets scooping them up far faster than any human could ever hope to. Most of these systems are now selling on various auction and classified sites for grossly inflated prices.
Grey market reselling, aka scalping, of new consoles certainly isn’t a new phenomenon. Pretty much every launch has been plagued with the same issue since video games became popular. Anytime a product is in high demand, unscrupulous people always seem to worm their way out of the woodwork looking to make a quick buck. However, there’s a reason why smart investors don’t fall for get-rich-quick schemes.
See, there’s this concept in economics called price elasticity. If demand for a good stays relatively flat regardless of price changes, then it is said to be inelastic. Some examples include necessities like food, shelter, and fuel. Elastic goods meanwhile are items where demand does fluctuate with pricing. Most luxury goods, like game consoles, would fall under this category. As the price rises, demand decrease, as it falls, demand increases.
Knowing your product’s elasticity and where it falls on the supply and demand curve is important for determining how much it should cost. You want to price it high enough to get the highest profit margin the majority of customers will tolerate. Big companies like Sony and Microsoft put a lot of market research into this. There’s a reason why the Xbox Series X and PS5 are $500 and not $1,000. If they could maximize profits at $1000, they would certainly sell it for that. See Apple as an example. But these aren’t fashion items like an iPhone is. $500 is what the most people are willing to pay. In fact, we’ve seen what happens when companies charge too much for consoles. The PlayStation 3 being the best recent example at $499 USD ($644 adjusted for inflation) for its cheapest model at launch.
You can kind of see the problem starting to develop here. Scalpers are flooding the market with tens of thousands of consoles priced at $1,000 or more. Now, there’s always going to be a few people who have a poor grasp of value and an inability to delay gratification. They’re willing to pay those ludicrous prices right now. I suppose to wave their ePenis around, or something to that degree. The scalpers are banking on there being a lot of these people. But are there really?
Well, based on the scuttlebutt around the web, perhaps not. Most consoles are sold out right now, but both Sony and Microsoft have said that more supply is coming. So it seems the vast majority of gamers are willing to wait until stocks get replenished, and they can purchase one at MSRP. The general consensus being that neither platform is currently offering a compelling reason to upgrade. There are no must-have games as of yet. At least none that aren’t available on other systems. The fact that we’re in a global economic slump due to the CCPVirus is also tempering temptations to fork over the extra cash.
What this means is that scalpers have a high supply with shrinking demand. Those who got in on the market early will certainly make a killing. Profits on those initial sales are going to be strong. However those will shrink over time as both their potential customer base starts to decrease, and more scalpers hop on the bandwagon trying to make a quick buck. With so much stock, and so many scalper groups all competing for visibility on auction and classified sites, prices will inevitably have to start coming down. Especially as retail stock rebounds.
It reminds me a lot of the crypto-mining boom back in 2017. You had that initial wave of investors who were turning over big gains. Then more people jumped on board, clearing out stock of every PC graphics card so they could mine more coin. Then the bottom fell out of the market, Ethereum prices collapsed, and a lot of people were out a piss pot of money. Those GPUs then ended up on auction sites for a fraction their original value, with a lot of miners ending up out of pocket.
Indeed, I’ve already heard scattered anecdotal reports of PS5 scalpers pestering gaming YouTubers to advertise their auctions. What this tells me is that stock isn’t moving quite as fast as they had hoped.
As I’ve been saying for a while now, the best strategy is to hunker down and wait for the whole thing to blow over. There’s really little reason to buy consoles at launch. Especially with both companies being dedicated to cross generational support nowadays. Good games that are optimized for the hardware will take a while to come out anyway.
Photo by Richard Eriksson via Wikipedia
