Microsoft and Sony are playing a game of chicken when it comes to the price of the PlayStation 5 and Xbox Series X. No one wants to go first. And I’m sure that you, like me, find this strategy infuriating. They know the prices of their next-gen consoles, so why not tell us? Well — it’s not that simple. The reality is that neither company knows what they are going to charge you. And they won’t until the day they decide to announce that price.
Let’s explain what is happening here. I’m sure you’re thinking that both of these companies must know what their consoles are going to cost. And that is true. They do understand the costs. Sourcing parts, assembling the hardware, packaging, and shipping are not fixed, but they are at least predictable.
Sony and Microsoft know the cost to get you a PlayStation 5 and Xbox Series X. But that’s not the same thing as knowing what they are going to charge you.
That’s a subtle difference but it’s an important one to understand. The cost of production is not what you are paying when you shop online or at retail. Instead, price is a related number, but one that companies choose based on supply and demand.
And sure, the cost of goods is important factor in determining demand. If I could build an equivalent gaming PC for a few hundred dollars, then that would decrease demand for the consoles.
But I’m not here to give you a lesson about price dynamics. Instead, I’m here to explain why the way price works means that Sony and Microsoft don’t know what they’re going to charge yet.
How Sony and Microsoft learned to stop worrying about things they cannot control
The magic thing about price is that it’s the one thing in this whole complex, interlocking industrial system that Microsoft and Sony can control up until the last minute. Physical and economic forces are too powerful to overcome when it comes to the cost of the AMD processor, shipping, or packaging (which is probably $30 per unit alone).
And both of these companies have a lot of experience eliminating slack from the supply chain. So even if they find a new better way to produce a console, it’ll take years to implement those discoveries.
PlayStation 5 and Xbox Series X are coming this holiday, though. And Sony and Microsoft want to give their consoles every advantage at launch. But it’s not like they can go back and add new hardware.
So what does that leave Sony and Microsoft if they want room to maneuver against one another? Price. That’s the only thing that either company has full control over.
Seriously, though — how much are the PlayStation 5 and Xbox Series X?
Both companies have run the numbers on a range of prices that they’re ready to go with if needed. And the only thing they are waiting on is each other.
Does that mean one company is waiting to undercut the other? That’s unlikely. The thing about this game of chicken is that it’s probably going to have an anticlimactic ending where each console launches at the same price.
Based on the specs, the Xbox is potentially more expensive to produce than the PS5 — although PS5’s exotic storage interface may push it over the Xbox. At the same time, Microsoft is more equipped to absorb losses from hardware than Sony. And it’s not like the PS5 is going to even break even at $500.
And while neither company wants to lose a lot of money selling hardware, they know that getting off to a strong start is crucial. The people who buy into a console on day one are going to influence their social circles, and that can have a cascading effect. So is Sony or Microsoft going to keep the possibility of coming in $50 cheaper than the competition in their pocket for as long as possible? Yes.
That means the prices could fluctuate up until the day they get revealed.
Of course, Sony and Microsoft are about to reach a threshold where their control over price meets the needs of their retail partners. Soon, Sony and Microsoft are going to have to enable Best Buy and Walmart and Amazon to take preorders so they understand how many consoles to order. And they cannot do that without knowing the price.
So we should find out the price soon — it’s a matter of time.
Credit: Source link