The industry has become a huge influence on society and the economy today. It is an industry that is so huge that it is estimated that 70% of U. S homes will own a Video game system by the year 2005, (Cassandra, 2002) Just one year away. But what made it the way it is? Since it is still an industry it has to follow the natural laws of economics. In this paper we will dive into the industry that now has gone beyond movies and recordings in profit. The first is that the video game consol industry is an oligopoly and has to deal with the game theory.
It is an oligopoly because it has high barriers to entry such as hardware subsidies and very fierce competition amongst already established firms (Sce vek, 2001) Also there are only three major producers of video game consoles: Sony, Nintendo, and the recently Microsoft. Because these three all have personal interests the game theory applies quickly. The most recent example is the releases of the Playstation 2 by Sony, the Nintendo Game Cube, and Microsoft’s X-box. Early in the year of 2001 Sony released its latest Playstation 2 and its profits surged. They had increased 3.
1% to 24. 8 billion Yen, and 22. t million units sent world wide in the first fiscal year (IGN, 2002). Microsoft and Nintendo however had a different story. They decided to hold off sending of their product until the holiday season of 2001, a well-known purchasing time for consumers. However this induced competition for personal interests and both ended up worse off.
While the Xbox had sold 1. 4 million units, and Gamecube 1. 3 million, Sony had 1. 4 million units sold in its fourth quarter (Weintraub, 2002). That 1. 4 million was in addition to the millions sold before hand.
This unwise release is catching up with Microsoft as the profits for the X-box had halved to 190 million in 2003 compared to the loss of 60 million the year before (Yabedo, 2003), and it may soon be forced to leave the gaming industry. As it stands now the current owning of systems in households is 75% own a Playstation 2, 12% own a X-box, and 13% own a Gamecube (, 2003). While the figures may be small Nintendo is building up slow but steady steam with its big name titles, and domination of the hand-held industry. Its recent release the Gameboy Advance has caused a make up for the loss by Game Cube.
It had sold 3. 24 million units allowing the giant to remain awake. (Yabedo, 2003). However, as we know from example when a industry is earning economic profit others soon enter and drive it down. Sony announced that at the end of 2004 it would release a portable, hand-held gaming system known as the Playstation player (Yabedo, 2003) While the effects of this are unknown, one thing is for certain the the two arms of the console industry are going to have fiercer and fiercer as time goes on.
Another aspect we will look at is the demand of video games. Demand for video games is generated by many factors. The first is concept and graphics. There has to be some compromise between the two. While graphics in a particular game may be good, a weak story line can prevent from sales expanding as people may get board and vice-versa (Tanaka, 2001). The solution is to have an integration of a strong story line and up to date graphics (Tanaka, 2001).
The second factor is that the video game industry is an industry that is totally based off of players (buyers) tastes (Stalker, 2002) For example if a game did not have a huge amount of popularity, it is unlikely to have sequels as the case with Bobby the bobcat (Stalker 2002). However, take a game that has had a lot of popularity and hype and you could have a steady source of income from die-hards and entering fans (Stalker, 2002). While most games are aimed for a male audience, games aimed for a female audience have begun to emerge causing the audience to increase, and the demand (Chmielewski, 2002). So we ” ve seen what causes the demand for this billion-dollar industry, but what are its costs? One of the explicit costs is that of the creative team, consisting of designers, graphic artists, sound effect designers, computer programmers, and video artists. (Stalker 2002). Other explicit costs are that of chips, CDs, advertising, a test team, packaging, booklets, etc.
(Stalker, 2002) There is however a major implicit cost that everyone seems to forget “what could this have been” When a creative team designs a game they usually have a budget to follow, which means that 2 games are near impossible to develop. Therefore the implicit cost is developing one game or another (Stalker, 2002). When a team develops one game its implicit cost is that of what the other game could have generated in profits. Therefore, every game developed is a risk (Stalker, 2002) As with almost every product in the market video games can produce externalities both good and bad. First we will look at the bad, the biggest is that of video game violence. Its been shown that children at a young age who play video games with violent sub-themes show overly aggressive behavior later (Cesarone, 1994).
While there have been video game content ratings the problem still persists of people definition of violence allows kids to still have access to those sub-themes (Cesarone, 1994). Another problem that arises is that of children developing a sense of autonomous action rather than teamwork. The most common game scenario is that of a singular character defeating a great enemy (Cesarone, 1994). While this may be attractive to sales in older audiences, it has the adverse effect of teaching children that its okay to go it alone, and that teamwork is inefficient.
Lastly video games cause the negative effects of health problems and affecting attitudes toward gender roles. While these two subjects are the least commons, they are serious. Video games can cause seizures and increased blood pressure in a few studies. Lastly in most games women are seen as helpless and needing to be rescued by a male character. The reason being that as old systems are being replaced with more expensive s leaker systems, the people more likely to shell out 200 dollars are younger men.
While women may protest its common knowledge that give a boy and a girl 200 dollars the boy will buy toys, and girls will buy cloths (Chmielewski, 2002). Also the recent advance of physical interaction in games has appealed to girls more than men, this technology as it further grows will the gender rolls in video game playing (Chmielewski, 2002). This is all thanks to the revolutionary game by kon ami, it has broken the stereotypical image that guys who play video games are pimply faced, glasses wearing, star trek, , geeks. There are however positive externalities from playing video games. They can be used in physical rehabilitation and oncology, as well as used to stimulate creative ideas (Cesarone, 1994). Eventually with the advent of virtual reality and other such tech, teaching the blind to see may not be a dream anymore.
Other ways a video games can have positive effects is through education. Video games can teach children how to use computers and have a “user friendly” way of studying, as well as in crease in hand eye coordination and attention given to details (Cesarone, 1994). With 60% of people playing video games are over the age of 6 these externalities are going to become more and more controversial (Buren, 2002), especially now that video games have become the preferred choice of entertainment by many. They are cheap and a long lasting source of entertainment, as well as able to appeal to the tastes of many (Khanje, 2002).
This leads to our final topic: Investment. The main investment is that of educating students eager to get into the video game industry. (Khanje, 2002). There have been several schools opening around the country, as video game companies are demanding more and more skilled workers trained in computer animation and technologies (Khanje, 2002).
And with this demand comes more supply, the video game industry has begun to grow; even in the gloomy recession of 2002 it had grown by 20% in sales (Khanje, 2002). It is one of the few industries that grow during economics hardships (Kauffman, 2002). Soon developers hope to begin to see more female themed games amounting to an even greater profit (Chmielewski, 2002). With this increase investment and demand in human capital it is clear to see that the industry is bound to only continue growing.
In conclusion the video game industry is growing, it has been for the last thirty years and will continue maybe for the next hundred. But it is an industry none the less, it has to follow the same laws as any other firm in the game of economics, and in this game there is no save point or pause button. We have seen that because of the game theory the console companies make choices for what they believe to be their best option only to have a worse outcome than if they had released at a different date, that as a compony earns an economic profit other companies will try to enter that area driving down economic profit, as well as examples of their fierce competition to stay on the cutting edge. We have also seen that they follow the laws of demand, and develop only on the desires and tastes of the buyers, the costs that come with producing a game both explicit and implicit, and the externalities that come with the products. And what investments are being made for the future in this billion-dollar industry.