The Microeconomics of the Video Game Industry Essay

The network effects in the video game industry are derived from the console system that is sold to consumers. If a company is able to increase penetration in this arena, though at-cost/ below-cost pricing or pull created through the development of desirable content, it can potentially lock in the added value of the video games sold for the system. Which is to say, the console locks-in the network effects in the industry and the games serve to reap the profits. The video games, however, may present something of a challenge in that they can be somewhat easily replicated by competitors. Nintendo used an encrypted chip system to reduce this possibility.

Video games have become as pervasive an aspect of our society as television, with many people spending more time playing video games than watching television. There are many perspectives with which to gauge videos games’ effect on society, from a functionalist, conflict or interactionist perspective. (Schaefer, 2011) Each of these sociological theories can provide a different view of video games, how they affect society and the subcultures that develop around them.

and the Nintendo DS, a dual screen portable system (Nintendo History. n.d.). In 2006 the Nintendo Wii was released. Cheap, small, and with a massive collection of high quality games, the Nintendo Wii became the best selling console of its generation, outselling both the PS3 and Xbox 360 combined (Gaudiosi, (2007).

As sales of Nintendo’s Wii and DS dominate the PlayStation 3 and Xbox 360, and PlayStation Portable, respectively, the pressure continues to mount on Sony and Microsoft to move to the next level in the ongoing console wars. Sales of the Wii in 2008

When buying a gaming consoles, be prepared to spend a lump sum of cash. The PS4 used to cost 400 dollars since being first released back on November 14, 2013, but recently it has dropped down to 350 dollars. The Xbox One price has fluctuated since first being released on November 22, 2013. When it first launched in the United States, the original price was 100 dollars more than that of the PS4’s original price of 400 dollars. In todays society, people or perhaps only me, tend to buy the cheaper options of things. So of course, people brought the PS4 over the Xbox One. Microsoft must have thought their gaming console was far superior than Sony’s gaming console so they made it cost more. This action by Microsoft weakened the Xbox One sales. In

In order for us to evaluate what people’s opinions of their consoles were, we decided to evaluate the most recent video game consoles that released only three years ago. As a result, we choose to use Microsoft’s Xbox One and Sony’s PlayStation 4. Launching just one week apart from each other in November 2013, the Xbox one and PS4 gave birth to the eighth generation of video consoles. Each console sold millions within their first few weeks on the market. At the end of 2013, Sony’s PlayStation 4 had been sold to over 4.2 million people worldwide (2), were as Microsoft’s Xbox One had only been sold to 3 million people worldwide (1). As of November 1st, 2016 the PlayStation 4 had over 45 million units sold to consumers worldwide, followed by the

In the year leading up to 2013 both brands went in different directions with where they wanted to take their console. Playstation wanted to make sure it was the games that were being put first while the Xbox One was being marketed as more than just a gaming

The XBOX is now a 6th generation video game console that is manufactured by Microsoft. The machine itself was released in November of 2001, just in time for the 2001 Holiday Season in the United States, then subsequently worldwide. The decision to manufacture and release the system was Microsoft's first plunge into the gaming console market and designed to compete with the Sony PlayStation 2, Nintendo's GameCUbe, and Sega's Dreamcast. By November of 2002, Microsoft launched the Xbox Live service that allowed players to play interactive games online (Gamer's Catch, 2006). Looking at the evolution of the system, however, we now know that the Xbox began to be discontinued in late 2005 (in Japan) and then in early 2007 in North America. The last game was released in August 2007, and even support for out-of-warranty consoles was discontinued in 2009, with all new faulty consoles replaced with Xbox 360. Xbox Live support was discontinued in April 2010 (Whitten, 2010).

Section 1: A Synopsis and interpretation of the Supply chain changes made between Xbox and Xbox 360 by Anand Kangala

Bargaining Power of Buyers: In 2008, the bargaining power of buyers did not play a huge role in the video game industry. Buyers were very intrigued by these products and were willing to pay fairly high products to get them. In the future that may not always be the case, since prices are often fueled by demand, if the draw to video game consoles drops significantly then the power of buyers will have a greater role. In 2008, there were an abundance of buyers, more than the supply could meet in many cases. Buyers like their brands and they trust the products that are being made so they are generally willing to pay a fairly high price for these products.

Consumers spent $1.1 billion on new physical games and consoles at U.S. retailers during the five-week period from Aug. 31 to Oct. 4, 2014, according to industry-tracking firm The NPD Group. That is up 2 percent from $1.08 billion over a similar period in 2013. The year-long growth of new-console sales is making up for lackluster video game sales.

Overall, the market response to these three consoles has been surprising. Nintendo Wii, has outsold its rivals and more surprisingly, Sony’s PS2 has outsold PS3. This has let Microsoft and Sony with the enormous challenge of competing with a rival possessing two key advantages: a lower cost console and a product with a sound response in the market.

Nintendo appears to have implemented a market-penetration pricing strategy. The Wii at a cost of $250 is 50% less than the 20-gigabyte PS3 (smaller hard drive machine). At this lower price, it is easier for the product to penetrate the market due to affordability in most segments. This aligns with the assumed company’s aim of maximising market share in the current and new segments. To achieve this, Nintendo ensured that the Wii was less costly to manufacture. Moreover, a higher sales volume may lead to lower unit costs and higher long run profits. Conversely, Sony is believed to have a market-skimming pricing strategy. The company invested $2 billion in technology, so this strategy aims at recovering the maximum amount of revenue to cover the high costs incurred in the early stages of the product life cycle. Additionally, Sony has a strong brand due to the success of their previous machines (PS2 and playstation) and the high price assists in communicating the image of a superior product with quality.

1.) What supply chain changes did Microsoft make between the Xbox and the Xbox 360? What was the motivation for these changes? When Microsoft first entered the market with the release of the Xbox in 2001 it was a newcomer in the console business. The company had neither an established brand presence in this area, nor did it have a developed base of games and gamers in the market, such as Sony. Therefore, the primary purpose of introducing the Xbox was to establish Microsoft in the market, to develop a brand presence, gain acceptance among gamers and to prepare the way for future products. Therefore, Microsoft’s

Herman et all (2002) points out that history of video games begins from 1971 year, when Nutting association released 1500 machines with Spacewar video game. At the beginning it was too difficult to control the game process and playing machines had huge dimensions. But by the time with new technologies they become more compact and easier to play. According to the information given by Herman et all (2002), the period between the years of 1978-1981 is called ‘golden age’ of video game industry. In this period the arcade games ‘Football’ and ‘Space Invaders’ were released. All previously known sale records were broken by these two games with nearly equal wages. In this time interval great breakthroughs in the field of graphics were achieved,