Top video game prices may increase in price

link: http://www.nbcnews.com/id/3078404/ns/technology_and_science-games/t/top-video-games-may-soon-cost-more/#.WA0Dw_orJPY

Article published by Tom Loftus for msnbc.com in June 2013

Constantly evolving development costs of video games are predicted to increase the price of top-sellers. There are a multitude of increasing costs that go into video game development – more complicated coding, more development team members, higher quality team members, etc. – that derive from the need to meet the capabilities of increasingly sophisticated gaming technology. These higher input costs lead to a decrease in supply (less quantity supplied and greater price willing to sell for).

Another concept that is presented is the “life cycle” model, which illustrates the price fluctuations of gaming consoles, which are complements to video games. A few years after a console’s initial release, when the development teams are able to shift to production of a new console with more sophisticated technology, the price of the initial console is significantly lowered. This is when over 50% of console sales occur. Thus, during this time, lowered sale prices result in a higher demand (greater quantity demanded and greater price willing to buy for).

The stated average cost of a Triple-A game (games with the highest development budgets and levels of promotion; expected to be high-quality bestsellers) is stated to be $49.99/game. These are the games that are expected to rake in over 50% of game sales. The decrease in supply and increase in demand should result in an unknown new equilibrium quantity and a greater equilibrium price, what is estimated to be closer to $60/game. However, game producers are not raising their prices because they believe that as long as the quantity demanded increases, then they’ll be able to sustain their market. Demand has been shown to increase considerably over the years as gaming grows into mainstream media and the market expands, so producers aren’t wrong in their assumption of increasing consumer demand. However, they are naïve in that they do not recognize that buyers would also be more than willing to pay a raised price for a higher-quality game, and that sustaining or lowering prices might signal to buyers that the game is of a lesser quality. The resistance to raise prices has resulted in a shortage, since quantity demanded is greater than quantity supplied.

1 Comment »

  1. Nicky Tynan Said,

    November 2, 2016 @ 3:56 pm

    This is a very good analysis of shocks to both the supply and demand side of the market. While video games are not identical, you have provided a good analysis assuming they are close enough substitutes to treat as a single market.

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