Webb went into a funny rant today about Halo 3 and “remember when they used to make enough product instead of hype and hype and hype and then, ‘Sorry, we can only release twelve.  Fight amongst yourselves.'”

This struck me a little more seriously than it should have because I asked about the Wii at BestBuy the other day and was told that they never have them in stock.  Every once in a while they get twelve or so (same number, but that’s how I remember it) and they immediately sell out and then they simply have a display that advertises something they don’t have.

That makes no sense.  Shortages should motivate a company to raise the price, if they can’t increase production cost effectively (and, the way mass production works, it should be possible that great demand would eventually lower the cost because it is cheaper per unit).

So what gives?

Well here’s one possibility.  I have no idea if it is the reason or something like it is or not.  Someone with better resources will have to figure it out.  The bottom line is that if companies are taxed for holding items in warehouses then they have an economic incentive to not release more than they are confident they can sell.

Gene Wolfe in a self-interview in his book Castle of Days, p. 287:

Q: What do power tools have to do with writing?

A.: A lot as it turns out.  The Thor Power Tool Co. used to keep a warehouse full of parts for their old tools.  That way, if someone who owned one of their old tools needed a new part, they could supply it.

Q.: That sounds good.

A. Thor thought so too.  The reason they were able to do it–pay for the warehouse and so on–was that they depreciated the old partson their tax return each year.  In other words, they said each year that the old parts were worth less than they had been the year before, since they would eventually become completely obselete and would have to be scrapped.

Q.: That sounds reasonable.

A.: The IRS didn’t think so.  They said that if Thor wanted to write them off, they had to scrap all of them right away.  Thor fought the case in court and lost.  The IRS then applied the decision to every other kind of business, including book publishing.

A.: Publishers don’t warehouse old parts.

Q.: No, but they warehouse old books, and they had been writing them off in the same way, becaue they would have to be pulped when they stopped selling.  Now they have to pulp them or remainder them, right away.

Like I said, this probably is not a perfect fit.  But something has to be going on.  How can Nintendo afford for a consumer to walk into a store and find a product is unavailable?  Aren’t they worried that consumer might decide to opt for another product?

It doesn’t make sense unless there is some economic incentive not to have too many in stock.