Why are Nintendo games so expensive?

[Rummy]

(Also, just so people know where I was coming from on the Supply and Demand thing):

 

 

 

The bolded part basically proves what I was saying - I was arguing that the supply part didn't count here as the availability of online downloadable titles means the 'supply' is almost inexhaustible, and therefore it's not a case of consumers paying more because there are fewer available copies. Obviously though, the links you posted Rummy seem to present it a different way, and I'm not going to pretend to be an expert on this.

 

Also, one of the assumptions of a Supply and Demand model requires markets to be perfectly competitive:

 

 

...which makes sense, since the whole concept wouldn't be possible otherwise. Which the current situation really isn't (Nintendo have a monopoly), which means the assumptions of the model are invalidated, which means Zechs can't apply it to this setting.

 

No economy or market is entirely perfect, and models are approximations. Nintendo have a monopoly on THIER games...but they're in a competative market, they don't hold a monopoly in the market itself. Competition IS possible, and does exist, it just doesn't get the job done well enough. Supply and demand is a balance between the suppliers and the demanders - you can't just say 'well produce more product and reduce the price' - supply is determined by how much the supplier wishes to supply and at what price. The equilibrium exists until something changes in demand or supply. I'd point out you made your argument of supply on the physical media as digital content - it still has a number of resource costs associated(making of the game, production of the physical copies, shipment, storage) and with digital distribution there is still resource costs(making of the game, hosting, distribution). Economics is based on the basic problem of infinite wants and finite resources. There are probably less resource costs associated with digital distribution, but there ARE still costs. Examples of 'unlimited' supply aren't technically possible. Whilst we can model the ideal way to progress and make the money in the economy(ie increase digital distribution and cut the price) it isn't 100% that it'll work, nor that Nintendo will do it even if it almost was.

 

I understand the point you're trying to make I think - that the high price isn't set by the lack of supply. Whilst true, this doesn't mean the S&D model isn't applicable - in fact Zechs is saying it is and the demand side allows them to keep the price high. Supply and demand is a choice on both sides and the balance - essentially Nintendo say 'We want to sell at least 100,000 copies of X at £40'. If they achieve that, they're happy and have no need or reason to adjust the price beyond it. IF they end up selling 1,000,000 copies of X at £40, they're even happier. The demand meets the supply they want; it's only if it doesn't that the price would theoretically fall.

 

It's a balance of choice, and their games survive in it. A possible counter however is the Wii U itself; where some may well argue that demand is not great enough to meet the supply and a price cut would be apt. Though by some I mostly mean me :P

Edited August 6, 2013 by Rummy

[Sheikah]

Yeah, I don't expect any market is 'perfectly competitive', but the assumptions of the Supply and Demand model mean that the closer to being true that is, the more applicable it is. I think in this case with Nintendo selling their own games, on a system they own, that the Supply and Demand model (where consumers want one of a limited number of a product, and there are usually other companies offering the same/very similar product at different prices), I just don't think it fits very well.

[EEVILMURRAY]

Sorry to bump this up, but when you see New Super Mario Bros (Note: Not U) for £42 it goes beyond "supply and demand". That's just Nintendo being greedy fucks.

[Happenstance]

Sorry to bump this up, but when you see New Super Mario Bros (Note: Not U) for £42 it goes beyond "supply and demand". That's just Nintendo being greedy fucks.

 

I had that problem a few months ago. I wanted to buy New Super Mario Bros on Wii for my Niece's birthday but everywhere was still charging full price for a game that isnt even this gen anymore.

[EEVILMURRAY]

You can get Pikmin 3 cheaper than that (£34 at Tesco)

[Ville]

Yep, the prices will just never go down, and I end up buying them used (no money for you, Nintendo). I guess that's what they're aiming at then...

[Serebii]

Sorry to bump this up, but when you see New Super Mario Bros (Note: Not U) for £42 it goes beyond "supply and demand". That's just Nintendo being greedy fucks.

 

I wouldn't say it's Nintendo being greedy. It's the retailers being greedy. They know people will buy it for that cost.

[Sheikah]

Are you sure it's purely the retailers setting this price? I would have thought it must depend on how much they can buy it for from the supplier. Like every shop selling Rayman Legends for maybe £30 even though it just came out - that's not because they think people don't want it as much as a Nintendo game that has been out for 3 years. It must surely be because they get them cheaper?

[EEVILMURRAY]

I agree with Sheikah, there's no way this is the sole blame of the retailers. Otherwise many would try to undercut each other a little more than knocking off £2 for it being preowned. The fact is you've got newer and better games which have gone down in price in months.

 

At work I always notice Bioshock Infinite, which got masses of high scores (and awards?) now on 360 for just £25. And that came out this year. And this is just one example. And it sells, still.

[MoogleViper]

A lot of people keep spouting on about economics, but profit maximisation =/= supply and demand. Especially in monopolistic competition.

[Sheikah]

Yeah, I was trying to say it had nothing to do with supply and demand earlier. :p

 

Zechs and Rummy got the wrong end of the stick here.

[Rummy]

A lot of people keep spouting on about economics, but profit maximisation =/= supply and demand. Especially in monopolistic competition.

 

Why isn't the product priced even higher?

[MoogleViper]

Why isn't the product priced even higher?

 

Do you mean why aren't Nintendo games even more expensive?

 

With monopolistic competition, products are priced at the point that will give them the most profit. As you increase the price, you increase your margins but you sell less (we'll assume that this is the case, there are a few markets, such as fine wine, where increasing the price can actually increase the number of units sold). In perfect competition, there are perfect substitutes. So if Product A is priced higher than Product B, then consumers will just buy product B. Obviously nothing's exactly perfect, but in lots of markets the distinction is so small than you can model them as perfect competition.

 

The video game industry is monopolistic competitions. This means that there aren't perfect (or often even close) substitutes (unlike a monopoly, where there are no substitutes). For example, if you wanted to buy a Zelda game, there aren't any other substitutes. You can't buy a Microsoft branded Zelda game. Yes there are other games, but they're not Zelda, hence why they aren't close substitutes. It's slightly different with multiformat games, but even still, if the 360 version of CoD is more expensive than the PS3 version, you can't switch unless you also own a PS3.

 

For this reason it's possible for Nintendo to push prices as high as they can. As there are no substitutes for conusmers to switch to, the only restriction would be pushing the price so high that consumers choose to not buy the game at all. This also explains why nintendo games are more expensive than PS3/360 games. Most PS3/360 games are multiformat, so there can be switching between (especially considering that many consumers own both consoles, plus the PC versions to take into account (there's also a case for Microsoft/Sony not wanting people being put off by the higher prices, and actually swwitching console altogether)). As Nintendo is fairly well differentiated from the rest of the industry, they can push prices up even further.

 

So the price that games are sold is the price that Nintendo believe to maximise their profits, Where the high profit margins outweigh the number of consumers being dissuaded by the high price. (For simplicity's sake we'll assume that retailers have no say in the price.)

 

Does that answer your question, or have I misunderstood?

 

TL;DR - The price is the optimum balance between increased profit margins and decreased unit sales

Edited September 2, 2013 by MoogleViper

[Rummy]

Yes, it's the optimum balance. But what creates the juxtaposition between increased profit margin and decreased unit sales? The price point to set is derived from a demand curve, no? The supply(quanity, price) is set in accordance, no?

 

I'd agree a profit maximisation model is probably more applicable - but is such a model still not influenced by underlying factors of demand and supply, given that, as you say - it's not a true monopoly?

[MoogleViper]

Yes, it's the optimum balance. But what creates the juxtaposition between increased profit margin and decreased unit sales? The price point to set is derived from a demand curve, no? The supply(quanity, price) is set in accordance, no?

 

I'd agree a profit maximisation model is probably more applicable - but is such a model still not influenced by underlying factors of demand and supply, given that, as you say - it's not a true monopoly?

 

Yes supply and demand play an influence, but in a market like this, the supply is entirely controlled by Nintendo. Supply can't be increased due to competition. Another company can't start making Zelda games, thus decreasing price. Nintendo has full control over price, hence why it's not a "fair" price.

[Rummy]

Nobody was claiming it was a 'fair' price - but due to that exact supply and demand they can keep it at the price they want it. It's similar to fashion and clothing brands which people buy for the name and logo. It's something you can't get anywhere else, and thus, it can be kept at a high price by the manufacturer by playing on that.

[Corsair]

Remember when Turok was £70 at launch on the 64? In 1997. Yea, good times.

[Ashley]

Well Nintendo is dropping some game prices. Super Mario Galaxy 2, New Super Mario Bros. Wii and Wii Sports Resort are £19. See, you just have to wait five years!

 

http://www.digitalspy.co.uk/gaming/news/a513489/super-mario-galaxy-2-new-super-mario-bros-wii-receive-price-cuts.html

[Happenstance]

The fact that this is a proper price cut that they actually putting out a statement with for last generation games is just weird

[Sheikah]

Well Nintendo is dropping some game prices. Super Mario Galaxy 2, New Super Mario Bros. Wii and Wii Sports Resort are £19. See, you just have to wait five years!

 

http://www.digitalspy.co.uk/gaming/news/a513489/super-mario-galaxy-2-new-super-mario-bros-wii-receive-price-cuts.html

 

lol, these are all last generation though. :p

[The Bard]

Aren't Moogle and Rummy saying the same thing? Maybe my brain is more fucked than I thought.

[MoogleViper]

Aren't Moogle and Rummy saying the same thing? Maybe my brain is more fucked than I thought.

 

Kind of. I'm just trying to emphasize the distinction that Supply and Demand refers to the balance between the supply of a product and the demand for it -and the price is determined accordingly, whereas in profit maximisation the price is controlled by the sole supplier of the product.

[Ashley]

lol, these are all last generation though. :p

 

Kind of my point

[Zechs Merquise]

@MoogleViper: Nintendo are not a monopoly. The console market could be described as an oligopoly, as it only has three companies that control the entire market.

 

A monopoly is when one company controls the flow of a single commodity to the market. A good example of a monopoly would be BT when BT controlled the entire home phone market.

 

To describe Nintendo as a monopoly because Nintendo are the only company that produce Nintendo games is complete economic nonsense! Nintendo's titles are intellectual properties, copyrights and trademarks not monopolies!

 

There are a number of close substitute products to Nintendo games. There are other games in those genres that exist on both Nintendo platforms and other platforms. Don't want Mario? Buy Rayman. Don't want Zelda? Buy Darksiders. Don't like Mario Kart? Buy Sonic Transformed.

 

If by your logic Nintendo is a monopoly because only they produce Zelda and Mario games, then Sony is monopoly as only they produce Gran Turismo and Little Big Planet... But also Marvel comics are a monopoly as only they can make Spiderman comics. Also, Apple are a monopoly as only Apple produce devices with iOS.

 

Let me explain in a simplified way how monopolies work:

 

If one company controls all the production of jam, let's call them MicroJam, then MicroJam would be a monopoly.

 

Now if all of a sudden other companies start producing jam - let's call some of them Jega, Jamy and Jamtendo for sake of argument! Now they all produce jam made from their own mixtures and made From their own secret recipes.

 

Jamtendo makes an awesome raspberry jam. It's really good and there is high demand for it. Jamtendo sees the high demand and thusly decides to set the supply of that jam to achieve a price which is an optimum price which will yield the perfect outcome of sales and profit. This does not mean Jametendo has a monopoly over their raspberry jam! It just means they are setting the price of a product, something that every company has the power to do.

 

Nintendo simply sell their games at what is known as the "profit maximising price". This price is set by the company to maximise profits. However it still falls within supply and demand as there are substitute products and Nintendo is NOT a monopoly.

 

The only company that was considered a monopoly in the software market was Microsoft as they were the only company that produced PC operating systems - forcing everyone to buy Windows, which then pushed other products on people including browsers, email clients and office software.

[MoogleViper]

@MoogleViper: Nintendo are not a monopoly. The console market could be described as an oligopoly, as it only has three companies that control the entire market.

 

That's a lovely post, however monopolitic competition =/= monopoly. Hence the "competition" part.

 

Also hence posts like this:

 

The video game industry is monopolistic competitions. This means that there aren't perfect (or often even close) substitutes (unlike a monopoly, where there are no substitutes).