Monday, April 19, 2010

Video Game Industry

The Financial Times has an interesting report on the video game industry after the release of Call of Duty: Modern Warfare 2. From an economic perspective, the industry also has some very interesting elements. First is that there is a big difference between the video game console industry (Wii, Xbox, Playstation) - which is a classic oligopoly and the video game industry itself, with a host of firms that produce very different types of games - which is a classic example of a monopolistically competitive industry.

Here we see that if a firm in the video game industry can produce a game that is different from other firms or that has customers perfer one firm's game over another, then that firm (Activision Blizzard) can make positive economic profits in the long-run, even during a time when video game sales were falling.

Understanding the basic ideas behind the video game and video game console industries, can help explain the trends in profits and the implications in terms of the strategies firms employ within the industry.

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