13 December 2006

Playstation3 economics explained

Being on leave today, I went down to Sim Lim to take a look at the PS3s. And yes, they do cost about $1,600. Normally this post would be the domain of a singapore economist, but since he's on hiatus and I thought I'd do the honours. While the Straits Times article was more interested in playing the "parallel imports are almost illegal, unsafe, and overpriced" angle, there's a perfectly logical reason why they'd cost that much, and we don't even have to invoke price speculation in the explanation.

We need to understand the economics of importing items into Singapore.

1. Take into account the US exchange rate fluctuates between 1 USD to 1.6 to 1.8 SGD (currently 1 USD = 1.55 SGD).

2. Take into account the price of freight.

These factors give us

3. Rule of thumb for sole importers is to set the pricing at double the US price in Singapore dollars. If an item costs X USD, its selling price in Singapore would be 2X SGD, in other words.

(This, by the way, explains why Borders tends to price certain books over the sky. Of course, with competition, the "double the USD price" method of calculation doesn't work anymore, leading people to just walk over to Kinokuniya to get the same book for cheaper prices.)

But you'd say "Look, the PS3 retails at about 510USD in Japan and 600USD in America. S$1,600 is far more than double those amounts!" But we're looking at the wrong figures - what the Singaporean PS3 importers are looking at is the Australian retail price: about 800USD. If we assume that Sony's suggested retail prices are essentially base price + freight/shipping, then Singapore's retail price might end up around there as well, being approximately the same distance as Australia from Japan or the US (or whereever they manufacture and assemble the PS3).

And what do you know, 1600 = 2(800).

I do foresee the price to drop, but only on a few conditions:

1. Sony announces a launch date and retail price for the PS3 in Singapore. Imported sets will fall to double the USD value of this announced retail price.

2. Sony clarifies the DVD region of the PS3 sets sold in Singapore. Yes, all PS3 games are region-free, and for once, Singapore is in the same Bluray region as the US and Europe, but one wouldn't want to be stuck with a PS3 that plays all new games, but refuses to load any US-region PS2 games, would we?

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