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.
However, GameStop is still at a disadvantage, because there are such a large number of competitors in the industry. Buyer’s bargaining power are high, since there is no brand loyalty in the industry. Customers are very well aware of the market price of a product and will look for the best deals they can find. Suppliers have high bargaining power since suppliers can choose to integrate forward and sell their products themselves. The success of the retail gaming industry is very dependent on the availability of supplier’s goods. Additionally, since there are low barriers of entrance, substitute products and new entrants often appear in the market. Since most competitors in the industry do not have a strong presence, the expected retaliation towards new entrants is low. An increasing popularity of smartphone games and social media games such as Farmville on Facebook, allows customers to play against friends. Although these social media games do not offer the same experience as a video game, the fact that virtually no switching cost is associated with switching to a competitor’s game and since they are so cheap compared to video game disk and consoles, can easily drive customers from video gaming to online gaming. (Exhibit 2)
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.
Although, seeing as video games are increasingly popular today, not everyone met as unfortunate of a fate. Today, many could credit this to the video game development corporation known as Atari, which arose in 1972 and continuously flourished until about 1982. In 1972, Atari came out with PONG, the first electronic arcade game, and it was an enormous accomplishment that exploded into what is now called the electronic gaming revolution. As time passed, Atari managed to triumph over its competition time and time again, but that is not to say that each of the failed corporations did not feature something that is used today. In fact, a couple of the failed organizations contributed something original to what is common today. For instance, Fairchild Camera and Instrument creating the first system that could play several different games, rather than just one. Another aforementioned group, RCA, was the first to produce and utilize keypad controllers instead of paddles or joysticks. Other consoles that came along, such as Intellivision and Vectrex, sported better graphics than the Atari’s consoles and games, but they still did not manage to gross the amount of money that Atari did because Atari was still on top of collecting all of the most entertaining and enjoyable games of their time. Keep in mind what attracted the masses to video games in the past: fun and addictive gameplay, not how good they looked. Now that the principal eras of gaming have been
Bargaining Power of Suppliers: The bargaining power of suppliers in the industry is low. There are numerous suppliers in this industry, and the large department stores have the ability to negotiate for the lowest prices. In addition, the switching costs are low, as the products are not highly differentiated. There are a large volume of purchases in the industry, allowing the department stores to exert even more power over the suppliers.
Threat of new entrants: Intensified price competition as new entrants sought their share of mature market had negative effect. However, high capital requirements positively affect Ford Motor Company. High capital was allocated for research and development which was and advantage against new entrants.
As we know, conditions that cause high rivalry among competing firms can be the numbers of competing firms named above but also when competing firms are of similar side. According with Statista based on US retail sales in 2015 TJX has $23.56 billion and GAP has $12.6 billion and Target (named before as a competition) has $73.23 billion.
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
The age of playing on the video game console was thought to end in recent years, but strong need for console gaming is still in demand. The Sony Playstation 4 has sold over 20 million, while Microsoft and Nintendo have sold half that amount. Sony, Microsoft and Nintendo are projected to earn over $15
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
The video game industry is the economic sector involved with the development, marketing and sale of video and computer games. It includes video game consoles, game software, handheld devices, mobile games and online games. The video gaming industry has been growing exponentially in recent years with Sony, Microsoft and Nintendo competing for the higher profits in the market. This essay will analyze each of the five forces acting on the industry: threat of new entrants, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and the competitive rivalry among existing firms. Then it will be determined if the video game industry is still an
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.
The bargaining power of buyers stands in a direct relationship with the bargaining power of suppliers. If the bargaining power of buyers is substantial it increases the opportunity cost of suppliers. The greater the buyers concentration the greater their bargaining power. This bargaining power is also increased in markets where the suppliers’ concentration is high. The bargaining power is also increased when the cost of switching from one supplier to another is low. In instances where backward vertical integration is possible i.e. buyers setting up their own chains of suppliers the bargaining power of the buyer increases in that their prices may become more competitive. In a market where the buyers are more concerned over quality than price their bargaining power decreases as they are less inclined to shop