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Shortages

A lot of people had difficulty in understanding the practical implications of the nut and bolt puzzle I had asked 2 weeks ago. Hence this detailed mail is my attempt to bring some context into the whole issue.

Take the case of Nintendo. Like any merchandise manufacturer the company has to work in tandem with the retail and distribution network to be able to sell and make profits. However the organized retail chains like Walmart would dictate terms, offer ridiculous discounts and do arm twisting of the manufacturers.

Hence Nintendo deliberately created shortage by producing far less number of video games than the demand. (destroying bolts in order to gain bargaining power). Now unless a store stocks the latest of the Nintendo games,
it will not be able to attract the kids to buy other related toys also. Hence instead of pressurizing Nintendo to offer them favourable terms and margins, the stores starting offering Nintendo concessions (in form of in-store advertizements, shelf space, displays etc.)

The hype created by the shortage also helped the company to get attention, generate curiosity and get prime-time PR. The company was also able to push sales of some of the not so popular games and get better prices for their goods.

1 reply on “Shortages”

@ankur: how about making this in the common parlance using stereotypes –
there are 5 filthy rich guys and 5 gorgeous looking girls, so no one is really in a position of power, guys aren’t really giving attention to the gals. Assuming 2 of the girls go away…now imagine the situation, the desperation of the guys and the power of the girls 🙂 … that’s nuts and bolts.

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