Austin Baylor
We’ve entered the eighth round of
counsels in video gaming with the introduction of the Play Station 4, Xbox 1,
and Wii U; developed by Sony, Microsoft, and Nintendo respectively. We may not
all own of play on them, but we’ve heard of them, but have we heard the
economics behind the competitive market video gaming it?
The PS4, Play Station 4, and Xbox 1
have a combined total sale of over 10 million systems and they have only been
in the market for 4 months. The PS4 currently pushes ahead over the Xbox 1 due
to the price difference. The PS4 opened at 399$ while the Xbox was 499$. To
those who don’t have favorites, it’s clear what your first choice would be.
Both systems also rocket over 1 million sales within the first 24 hours of
their release dates in about the exact same time, so price was initially not an
issue in the choice of the consumers.
Bill of materials cost comparison of TechInsights.
Cost and Profit Comparison Chart.
Now to the actual amounts these
companies make. With the chart above, it shows that Microsoft makes almost 3x
as much money from a sale of an Xbox 1 compared to a sale of a PS4 on Sony’s
part. If we round the sale figures to the nearest million, Sony sold 6 million
and Microsoft sold 4 million systems. With sony making an estimated 40$ per
system, they’ve profited 240 million dollars in profit so far from the system
sales alone. On the other hand, Microsoft has sold 4 million at around 110$ of
profit a piece. That accounts for 440 million dollars of profit from systems
alone for Microsoft. This is almost twice the profit Sony has made.
New systems are not released often
and the last generation of systems came out almost a decade ago. It’s up to
these companies to produce the best they can to make the most they can. It’s
also a huge war to try to get others to be part of their brand and not the
other.
Most people own an Xbox or PS4. Not
many own both, and as systems get more expensive, the number of people owning
both shrinks, so it is important to the companies to get people to buy their
product and not the other. As of now the
Play Station Systems are more popular, but mostly because of cost and not
loyalty. Xbox owners tend to be more loyal to the Xbox knowing the extra costs
needed to own one.
These companies push millions of
dollars into the market each year with video games alone. Usually these come
from the annual release of games that sprinkle money into their pockets, but
every decade or so they unveil a brand new system. One reason is to stay ahead
of the crowd and the other is to give a boost to their companies. It’s only
been 4 months since the release of these systems, the companies and the economy
are still seeing a lot of money circulating because of 2013’s huge gaming
system release.
Sources
So do video game consuls stimulate growth in the economy by getting people to spend their money? Or does the money simply just sit in the companies pockets. With only 2 big competitors in the field it seems like monopolistic competition, because both companies make gaming systems; however, they also have their own distinguishing features. The only thing missing is a lot of competitors instead of just a few. It also might be interesting to see the amount of people substituting the increasingly expensive cost of these consuls with computer, which unlike xbox's and play stations, can be updated to keep up with advances in technology.
ReplyDeleteI read a similar article like this where it compares the cost of building both of these consoles and the retail price for what these companies sell them for. It is interesting to see Sony pushing so little profit, especially when you compare them to Microsoft. It seems that sale numbers alone do not particularly matter in terms of profit as Microsoft is clearly ahead of Sony. With Microsoft making the decision to bundle the Kinect system with every X-box One, it seems likely that the added costs hurt Microsoft in sales. The key to success in the video game console industry is to build a machine that will not last 2 or 3 years, but 7 to 8 years like the last generation of consoles had done. If these companies can win customers over from other sources like marketing and exclusive partnerships, then they will be set for the future. Good job on the post.
ReplyDeleteIt is very important for companies in the video game industry to find their Equilibrium price so that they can maximize their profits. As shown in this article, your company needs to know how people will respond to your company’s products. Even though your product may be more expensive than others, if people enjoy it so much it will be an inelastic good and people will buy it regardless of the price and thus you will maximize your profits by raising the price. One advantage that companies in the video game industry have is that their customers have to keep coming back to buy new games. This allows the company to have a constant flow of money even in times in between new system releases. This same principle has worked for printer companies as well. The companies make almost none of their profits selling printers. The largest flow of their income is though selling people ink every time they run out.
ReplyDeleteSony and Microsoft could almost be looked at as elastic and inelastic companies, the way you put it. Microsoft has more loyalty, making it inelastic because consumers will buy their product no matter the cost, while Sony is elastic because as the price drops, more people will but it just like most likely if the price was suddenly $599 for a PS4, less people would buy them. On a different topic, the profit made by each company is surprisingly far apart for a 2 to 3 ration, although it makes sense with Microsoft making almost 3 times as much.
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