the videogames industry

The video game 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 (Scevek, 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 Playstaion 2 by Sony, the Nintendo GameCube, 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, and13% own a Gamecube (yabedo, 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 GameCube. It had so...

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...t (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 componies 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.