It’s been over two months since Sony’s PlayStation 5 and Microsoft’s Xbox Series S / X have officially hit stores, and both consoles are still nearly impossible to find at major retailers. In the face of these shortages, many future next-generation gamers have turned their anger towards scalpers. These opportunistic resellers buy new systems as they become available at retail (often using automated bots) with the intention of immediately listing them for a significant upgrade on eBay or other third-party selling sites.
These resellers are certainly taking advantage of the situation, diverting console inventory from players who might otherwise get the systems at the manufacturer’s recommended retail price. But some recent extensive analysis of online listings suggests that resellers are only responsible for a small number of all new console sales in the US. Even in a world without scalpers, current demand for the PS5 and Xbox Series S / X would significantly outstrip current supplies.
Run the numbers
Self-described Oracle Data Engineer Michael Driscoll has done the legwork here, using Python scripts to scrape eBay and StockX for every successful listing with a PS5 or an Xbox Series S / X. His analyzes of these resale markets provide a fascinating deep dive into the details of used console sales, and we recommend reading them in full. But the headlines suggest that about 146,000 PS5 consoles (and about 110,000 Xbox Series S / X consoles) have been sold at these two clearing houses for resale since the systems launched in November.
Driscoll’s indirect, rough estimates from other resale markets such as OfferUp and Facebook suggest that 60,000 to 165,000 additional PS5 consoles will be resold elsewhere online after their original in-store purchase. All told, Driscoll estimates that the resale market represents 10 to 15 percent of the (also very roughly estimated) 2 million PS5s sold in the US to date. The percentages involved for the Xbox Series S / X are slightly smaller, but they are in the same range.
Again, a 10 to 15 percent reduction in the number of PS5s available at retail price isn’t nothing. According to Driscoll’s analysis, that’s hundreds of thousands of people who were unable to place retail orders and were forced to wait or pay median resale prices that peaked at up to 260 percent of the MSRP. That’s not a great situation for everyone involved, except maybe for the scalpers.
At the same time, those numbers suggest that the scalpers are not the overwhelming factor stopping retailers from keeping these new systems on the shelves.
Imagine there are no scalpers …
As a thought experiment, imagine a world where someone has wielded a magic wand and made it impossible to resell a console after it has been purchased from a legitimate retailer. Based on Driscoll’s analysis so far, 200,000 to 300,000 Americans in that world could have bought a PS5 for a suggested retail price of $ 400 to $ 500. Again, that would be great news for everyone except the so-called scalpers (who no longer exist. ).
But then what?
However, for the PS5, the core issue isn’t scalpers. It is that there are far more people looking to buy a PS5 than there are any existing PS5 consoles in the world.
Even with those supplies assigned to Sony’s MSRP, there would still be hundreds of thousands of potential customers clamoring for a PS5. I know because here in the real, scale-filled world, customers are currently willing to pay an average price of anywhere from 160 to 200 percent of the MSRP (by Driscoll’s calculation) for any of the thousands of systems available at reseller. The only way that will happen is if the aggregate demand for the system is still significantly greater than the aggregate supply (including the many resold systems that have already fallen into players’ hands in this case).
By contrast, according to Driscoll’s analysis, resale prices for the PS4 currently average between 70 and 90 percent of the MSRP. That’s what happens when retailers have enough inventory to meet demand. However, for the PS5, the core problem isn’t one of the scalpers. It is that there are far more people looking to buy a PS5 than there are any existing PS5 consoles in the world.
In a way, nothing is less surprising. Even the Wii U, which ended up being a huge flop for Nintendo, saw widespread sales and secondhand marks in the weeks around its launch. The nature of the multi-year console cycle (and early adoption of gamers) means that there is almost always enough pent-up demand for new hardware to account for anything a console maker can produce around launch.
So the question for each system launch is how long that situation will last. For the Wii U, supplies were easy to find on store shelves within two months of launch. In contrast, for Wii, the shortages lasted for years, leading to the widespread (and actively denied) belief that Nintendo on purpose withholding Wii supplies to create some sort of self-perpetuating artificial demand that made the system seem more popular (or something).
Just make more?
In the case of the new consoles of 2020, the supply restrictions seem to persist for at least a few more months. Mike Spencer, Microsoft’s chief investor relations, recently told The New York Times that Xbox Series S / X delivery would be limited through June at least. And AMD, which supplies chips for both the PS5 and Xbox Series S / X, has also said it expects delivery restrictions to last in the first half of 2021. “It’s fair to say that aggregate demand exceeded our schedule and as a result we had some supply constraints when we ended the year,” said Lisa Su, AMD CEO.
Can’t these chip and console makers just ramp up production to meet high demand faster? Theoretically they could, but logistically it is not always that simple. For example, limited supplies of raw materials and suitable production facilities could greatly increase the marginal costs of increasing production speeds. In any case, it’s hard to make those kinds of changes on a dime; Contracting new manufacturers and supply lines is a complicated process, especially if you didn’t see excess demand coming.
Increasing production capacity above a current baseline is also not without risk. By the time you’ve incurred the expense and effort of shutting down consoles faster, aggregate demand may have diminished, leaving you holding the bag of higher expenses and warehouses full of hard-to-sell products. On the other hand, if you keep stocks stable, you run less risk, and those potential players still will finally get their desired consoles (unless they change their mind or, of course, go with a competitor).
Without increased production, Microsoft and Sony could also simply increase the price of their consoles, bringing in additional revenue from a clearly starving fan base. However, from a PR perspective, that would be a really bad look in a world where hardware prices are only going down with time. Still, sometimes retailers try to pull off a similar trick by forcing customers to buy hard-to-find hardware as part of an expensive bundle.
So yes, when it comes to console shortages, scalpers are certainly part of the problem and an easy scapegoat when the store shelves are empty. But the bigger reason for new console shortages to emerge is the years of pent-up demand that console makers can’t (or won’t) meet as quickly as the market would like. As with any console launch, the only way to stop scalpers from paying second-hand markers is to just be patient.