Tim Harford offers an interesting analysis of the great XBox shortage of 2005. They are selling for $300, except that they are not selling because there is a massive shortage. He asks the question: why doesn’t Microsoft raise the price to $700 or more in order to clear the market, since that’s the price they are selling for on Ebay?
This is an interesting question but the answer can’t come from theory. It comes from experience. Retailers are loath to raise prices because doing so fosters ill-will among customers that can do long-term damage to a company. People like to think of prices as reflecting something close to a cost-plus level. Doubling them discredits that perception. It seems like a racket, even if you understand the rationale. To the extent that people feel happy about a sale, they are similarly angered by an anti-sale, unless there is some darn good reason for the increase (inflation, crisis, etc.). That the company can extract more money from people because their product is in high demand is just not seen as a good enough reason.
The culture of the bazaar only works in some places and times, and even in these cultures, posted prices come with economic development. And to answer Harford’s objection to his idea--that Microsoft is already suffering bad PR from the shortage--we can observe that some bad PR is worse than others. Imagine you hire a guy to mow your yard, and his services become popular. Which would you rather him say: “My price is doubled” or “business is booming, so I can’t get to it for a few days.” You might end up hiring someone else at a higher price but your good will toward the first supplier is preserved.
