July 13, 2009

And you thought the PlayStation 3 was expensive...

When it was released nearly three years ago, Sony's PlayStation 3 video game console cost either $500 or $600, depending on how big the hard drive was. It sounded like a lot of money because we assume that dollars are fixed in value, when in reality inflation or deflation changes how much a dollar is worth all the time. Setting aside the consoles that were trying to be full arcade games for the home, or that made video game playing only one piece of their larger package of multimedia features, what was the most expensive video game system after adjusting for inflation?

It was Mattel's Intellivision, a mainstream competitor of Atari that was released in 1980 for $300 -- or for $746 in 2007 dollars. That's only 23% cheaper than the Neo Geo -- a home arcade system!

I know there are already charts of how much video game consoles cost in nominal and real terms across the years, but I've never seen a good scatter-plot or time-series plot. So here they are for 45 consoles (this time including the home arcade and multimedia ones), from Magnavox's Odyssey in 1972 to Sony's PS3 in 2006 (full table here):

I adjusted for inflation by using the Consumer Price Index, since after all these are consumer goods. I got the data from this chronology of video games, which is extensively referenced.

Notice that the nominal prices have gone steadily up -- there doesn't seem to be nominal price "rigidity" here, as though we had some psychological barrier against the creeping-upward prices on the tag. Well, at least until a mainstream console hits $1000 -- then we'll see.

In the plot of real prices, the typical consoles have gotten cheaper over time, probably due to economies of scale, memory getting cheaper, or some other technological advancement. Also notice that it appears that prices are lowest when there's only one company with most of the market share -- in the mid-late '80s when Nintendo was the only game in town, and in the early 2000s when the PlayStation 2 cleared out Nintendo's GameCube and Microsoft's Xbox. I don't have good market share data from the 1970s, but this appears to hold there too, since Atari was introduced in 1977 and didn't see real competition until the early 1980s.

This contradicts that idea that just having a huge market share makes you act like a bad monopoly -- prices should be higher when there's only one dominant player, under that idea. Instead, the period when there was essentially one system to play -- 1986 to about 1991 -- was characterized by an incredibly low-price console, the NES. It's not until the eruption of consoles during the 16-bit era and just after that prices start shooting up again.

And Nintendo, despite dominating the market for most of its existence, has always kept its prices low. The real price of the NES was $238. For the Super Nintendo, it was $301; $235 for the GameCube; and $257 for the Wii. Sony's consoles, by contrast, have ranged from roughly $350 to $500.

I've got similar data that I'll post soon for the handheld consoles, but it looks pretty similar.

So if you thought video game nerds today spend too much money on their vice, just imagine how much of their paycheck people forked over to buy an Intellivision. I don't remember any of it first-hand, but the video game craze of the late '70s and early '80s was something else (maybe it was the drugs). As I showed in a graph in this post, arcade game sales have never been matched since 1981 -- and that includes the home console sales too, at least as recently as 2002, notwithstanding how well the PS2 was selling then. In fact, it was only in 2001, after the PS2 caught on, that home sales had returned to their level before the video game crash of 1983. It's just too bad there weren't very many games for it -- just a bunch of movies.


  1. The thing about Nintendo is despite their fluid marketshare numbers, they're not about the hardcore gamer market. This was evidenced most strongly with the Wii, which is marketed as the console for the casual gamer/family segment. Keeping their prices relatively low helps accomplish this. They also have the benefit of some very strong legacy titles such as Zelda, Metroid, and Mario anything, which have been around for more than 20+ years.

  2. I wonder if the lack-of-competition / low-price dynamic shows up in the innovation side of the equation: 1986-1991 is like two generations of regular computers. If innovation drives prices -- you can't charge more for the same old system (but via inflation you are forced to charge less) -- but you can charge more for a new system.

    But without competition (and reasonably low inflation) a company might delay releasing innovations in order to milk every drop of profit from the current console.

  3. Not to give you extra work, but does the same hold true for the price of the individual games themselves? $60 seems exorbitant, but it might just be that today it would be MY money, not Dad's.


  4. I doubt that legacies are that strong. It's not as if Sony's popular series haven't been around for 10 - 15 years -- that's a long time in video games. Conversely, all of the major series from the pre-Nintendo era failed to survive 10 - 15 years later on any system, including Atari's many attempts at consoles.

    Here's a finding from a recent article on how superstar software influences sales of the hardware:

    superstars increase hardware unit sales by 12% (146,000
    units), while superstar sequels increase hardware unit sales
    by 16% (192,000 units). We can reject that both the cumulative
    original superstar effect and the cumulative superstar
    sequel effect are equal to zero. However, we cannot reject
    that these two cumulative effects are statistically equal to
    each other. Therefore, we cannot confirm either of the two
    theoretical rationales."

    The generations all seem to be about 4 - 5 years, so I don't see that Nintendo was stretching out how long the NES lasted. When I say 1991 as the upper bound, I mean that that's when the Genesis finally made progress against the Super Nintendo.

    I'm trying to find better data on the actual games, but here's a sample of real prices (in 2007 dollars) of super popular games through time:

    Pac Man, Atari, 1982: $79

    Street Fighter 2, SNES, 1992: $102

    Kirby's Adventure, NES, 1993: $57

    Zelda Ocarina of Time, N64, 1998: $76

    Resident Evil 4, GameCube, 2005: $53

    Halo 3, Xbox 360, 2007: $60

  5. I don't think the 80's Nintendo price contradicts monopoly. Nintendo ran on a razor/razorblade strategy. The sold consoles cheap and made serious money selling games.

    Also, it's possible they had large market share because of low console price. Stores had Segas, Nintendo couldn't charge much more than Sega.

  6. There seems to be a psychological barrier of $300 until about 1990, and $500 from about 1994, with very few consoles selling for more.

  7. But then that's no psychological barrier at all, if it nearly doubles in 5 years -- our brains didn't change that much that quickly.

    It is probably the companies testing the waters to see whether or not the consumers do have a ceiling, and with each increase in nominal price that doesn't result in a defection of consumers, they figure that there is no psychological ceiling, and can keep their prices more in tune with inflation.

  8. I have mentioned this elsewhere but large companies often use pricing consultants to help set prices. All the major airlines use consultants. They develop specific models to determine how much they can charge before demand drops and how much profit they can make by balancing demand and price. If you can only make 50,000 units per month, then all you need to know is the max you can charge and still sell 49,999 units leaving no unmet demand. Obviously it gets more complicated the more factors you add in. Pricing too low leaves unmet demand and lowers profits while annoying willing customers who run to the competition, and so on and so on.


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