The Microeconomics of the Video Game Industry Essay

1042 Words Feb 14th, 2007 5 Pages
Tommy Deen
November 28, 2006
ECO 201

The Microeconomics of the Video Game Industry Video games have been around for years with many different types of consoles and games. The video game industry has grown into a $20 billion dollar industry over the past ten years, and it only shows signs of growing larger in the years to come. In the United States alone, the market has grown considerably where 60% of all Americans play video games, 40% are women, and 60% of all gamers are between the ages of 25 through 44 years old (games-advertising.com). According to an article on Gamespot.com, analysts estimate that the video game category will have about 50 to 55 more square feet of shelve space in Best Buy by the year 2007. The video game
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The consoles sold out only minutes after its launch (statesman.com). It is important to mention that the video game industry is an example of a razor and blades business model. This means that the companies take a loss on their consoles and make up for the loss with a profit on their video games and game accessories (Wikipedia.org). For example, Microsoft invested 4 billion dollars into their first console, the Xbox in 2000. Microsoft knew that they were not going to be profitable until at least three years, but they did not make a profit until after 5 years. They did not make this profit until the release of their exclusive game, Halo2, released in December of 2005 (Wikipedia.org). The video game industry can also be sited for having a direct relationship with other industries. As stated at ESA.com, "about $73 million in high definition television sales (HDTV) can be directly attributed to sales of the Xbox 360 game console." Microsoft does not own any HDTV manufacturing companies, but they do spur the sales of these companies. On the other hand, Sony is using Blu-ray technology in their Playstation 3 because they are one of the nine founders of the Blu-ray Disk Association and are trying to promote Blu-ray technology (Wikipedia.org). Video game software is also being utilized in the medical and defense fields to simulate the conditions for training purposes (ESA.com). The Video game industry has had a

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