|Video Games Competition Heats Up|
|Subject||Demand, Determinants of Demand|
|Topic||Supply and Demand|
|Key Words||Prices, Sales, Demand|
The two major video games producers, Sony and Nintendo, are engaging in a price war. Sony reduced the price of its Playstation console from $149.95 to $129.95 in June 1998 and is now cutting the price of its Playstation package. Nintendo has been offering rebates and now has decreased the price of its Nintendo 64 system as well as the prices of certain games and accessories.
The result of the price war -- as well as other factors contributing to an already buoyant demand -- has been a ballooning of sales. Since the price cuts, Sony has doubled its sales compared to a year ago, while Nintendo has seen a 23 percent increase.After 1998, sales may slow because consumers are likely to prefer more novel hi-tech products. Indeed, Sega is introducing a new game console that works with Microsoft software. Also, computers are coming down in price dramatically. (Updated October 15, 1998)
1. Draw two axes, one representing the price of video game consoles and the other showing the quantity
demanded. Add a demand curve.
2. Draw another diagram of the demand for video game consoles and show an initial price-quantity combination.
a) Consumers are predicted to grow weary of conventional video game systems, especially as new systems and budget computers emerge. What kind of goods are the new systems and budget computers in relation to the conventional video games systems?
b) Illustrate the effect of reductions in the price of computer systems, assuming that the price of conventional computer systems remains constant.
c) Is there a change in demand or quantity demanded? Why?
|Source||Associated Press, "Playing the game of price-cutting," St. Petersburg Times, August 31, 1998.|
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