…supply shortages are a fact of life. The puzzle is somewhere else: Why don’t companies raise prices when supply is short and demand is frenzied? Leaving aside oxygen and a few other essentials, there is no such thing as an absolute shortage of anything: There is only a shortage if the price is too low. At the moment, Microsoft is easily selling out the half-million or so Xbox 360 units (there’s no official number) for prices starting at $300 for the basic package. Why doesn’t Microsoft price them at $700 instead?
Tim despairs:
Over dinner with a friendly local economics department [TC: hmm…], I challenged them to explain the puzzle of why prices stay low in the face of such shortages. They cited a number of ingenious explanations, all of them unlikely.
Surely the legal mind can do better than these economists, comments are open.
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