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An Analysis Of Competitive Processes Within The Games Console Market.

1927 words - 8 pages

The games console industry has been selected as exemplifying a relatively mature industry currently in a state of competitive flux. This industry traditionally renews itself every 5-6 years, as new technology advances make the previously impossible industry standard. Console gaming borne from arcade phenomenon which swept the globe throughout the 70s, promised the possibility of playing arcade-style games in home comfort. Advances in technology, in many cases, removed the need for arcade centres, a declining industry in recent years.Not content with simply providing a home arcade system, the current consoles crop attempts to go further by creating home entertainment systems that not only play games, but on the internet utilising high-speed broadband connections, DVD movies and audio CDs to a high standard.Repositioning consoles as home entertainment systems has seen the industry grow from humble beginnings to one bringing in global revenues over $20bn in 2002, well in excess of the Hollywood movie industry. However, this assignment demonstrates the economic structures of the industry and firms within it have faced a number of challenges, and not all firms have proven successful.Industry PlayersConcentrating on the fortunes of 4 companies, each with unique strategies; motivations for entering the console industry, and each offering products appealing to different segments of the gaming market. Photos of the consoles can be found in Appendix A. The firms/consoles are :* 牋牋牋牋Sony (Playstation 2)* 牋牋牋牋Nintendo (Gamecube)* 牋牋牋牋Microsoft (Xbox)* 牋牋牋牋Sega (Dreamcast) (now defunct)Competition AnalysisThe industry conforms to an oligopolistic model of competition, currently being fought by three firms. The firms tend not to compete directly on price (discussed later) and a price cut by one firm usually results in a comparable cut by other firms. Competition is fought primarily on marketing strategies and software availability including other accessories. Additionally, many (firm's) actions are known in advance by competitors and consumers (Playstation 2 launch known a year in advance).There are significant barriers to entry for any firm wishing to enter the market. The industry can be considered to be virtually impossible to enter in the short run due to high fixed costs, large economies of scale, high brand recognition of current players, and a requirement to hold very large cash reserves.Elasticity of ConsolesElasticity properties (their sensitivity to changes in price to quantities demanded and supplied) are an important issue for consideration - this directly affects the relationships between price levels and revenues. Demand, (consoles deemed as luxuries) should be relatively elastic i.e. there should be many substitutes. However, this particular luxury good does not fit into this category as there are relatively few substitutes for a...

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