Rational gamers choose subsidized hardware, all else equal [update 2]

The overall business model should be sale = profits, not sales = loss.

If Nintendo can sell them and make a profit, then of course they're going to do it. With such a heavy 3rd party launch line up, Nintendo is obviously not going to be making the bulk of their cash on software. Which leaves hardware. Selling at a profit when it's the only option for profit isn't insidious or evil, it's SMART. You sir, are a moron.

"Exactly my point. If a company is unwilling to subsidize, it means a subsidy is a matter of life and death for them. This is a play to decrease risk. If the Wii were a sure-fire money maker, Nintendo would be willing to take a loss. Because they are not taking a loss, we know that the company views the Wii as risky."

Of course the Wii is risky, any proposition which involves spending copious amounts of money on R&D, then waiting for the maret to react to your innovation is inherently dangerous. This risk is multiplied by Nintendo's smaller size and lack of diversification in the market - Sony and Microsoft can absorb market failurs with their other industries.

Your argument seems to Pivot on the idea that all that matters about a console is how many dollars worth of chips is under the hood and that the goal of gamers is to purchase chips at what works out to be the cheapest cost.

Most of the Wii's market interest and potential sales have come, not from peoples interest in chip-collecting, but from their speculation as to which console will be more enjoyable for them. the Wii offers innovation, a low price range and many popular nintendo franchises.

This is more than enough to draw people to the Wii, despite it's lack of chip-collecting potential. Just look at the reaction of people on this board to your post, people like this will make up large portions of nintendo's market share.

In short, Nintendo is making perfectly sound financial decisions. The fact remains that they are offering a product which has drawn great interest and demand from the gaming sector, and they are doing so at a fraction of the price of their competitors.

-drodgers

Does anyone else find it amusing that Nintendo is going to be selling units out of box at a profit for less than either the PS3 or XBox? I honestly have to say its pretty much, as everyone else has said, proof of Sony and Microsoft's ability to throw money away when they're not making a profit and are being undercut so dramatically by a company that is.

The PS3 and XBox continue to try and close the gap between consoles and computers. At a certain point, why am I not just updating my comp? The only reason is because they're trying to create a captive market by making PS3 or Xbox exclusive games that cut out computer gamers like myself, so we have to buy one of these intermediate systems in order to get access. If that's not pure greed right there then I don't know what is.

At least Nintendo realizes exactly what they are and know damn well that console gamers will buy their system because it is a good deal, and until things change Nintendo still provides a platform for a host of well done franchises and series, along with other innovative (what we Americans would quickly label as "Japanes") games, that will never ever appear on PS3 or XBox.

In closing, I cannot understand the logic of saying that a company is somehow at fault for not only undercutting the competition but making a profit while doing so. This seems to be the dream come true in a capitalist economy where the objective is to make money.

The ceteris paribus argument here is flawed. Badly flawed.

You see, not all else is equal. Stating that the item with the largest subsidy would be the rational choice "all else being equal" ignores the reality of the situation, for one, and isn't really true anyway.

First of all, if all else were equal then hey would all have the same price, the only difference would be the amount by which it is subsidized. Subsidy != Price. Second, "all else being equal" assumes that everyone has plenty of money to throw away into buying whatever they want, when for a large number of consumers price is an incredibly important factor because they don't have money to spend. The $250 price tag on the Wii will make it a very attractive option to gamers on a budget, especially since games are supposed to be cheaper for it.

"All else being equal" would also imply they all had the same games available. If three consoles, differently priced, each offered me all the same games(we're going to assume they're ones I want to play) and the only difference besides price is how much they're subsidized, the subsidy won't make one bit of difference to me. The price will.

As a consumer, I don't concern myself with subsidies. I concern myself primarily with affordability and utility. They all serve the same basic utility - they play games - but not all of them have the same games which means one may have more utility than the other. That may cause me to lean more heavily to one game system than another. Affordability also factors in heavily, given that I am a full-time college student paying my own way through school(and majoring in business with a background in economics... which, by the way, did you ever even READ an economics book? Or take a class? ANYTHING? Or how about a Consumer Behavior class?) it factors in heavily. I have limited disposable income and so, when choosing a game system, I will be very appreciative of a system that I can appreciate without blowing all my money on.

I can’t really tell whether you’re honestly just misusing the term ceteris paribus, or if you’re intentionally using it to mask a weak argument. Either way, it does not belong in this argument. A ceteris paribus clause is used to level the playing field in a thought experiment, not to eliminate all possible objections to the argument, as you just did. Allow me to explain.

Your argument seems to be that a rational gamer would prefer the Xbox or the PS3 to the Wii because they would get more hardware for their dollar. And yes, it is true. The Xbox’s price is marked down $100 from its cost, and the PS3’s price is marked down $200 from its cost. The Wii, however, is being sold at a profit.

However, hardware economy is not a sufficient condition for choosing between these three consoles. There are many other considerations one must make, including hardware specifications, the quality and quantity of titles on each console, controls, online systems, and accessories. Even if we were to purport that hardware economy was the most important factor out of all of these, these other factors still exist.

Strangely enough, you attempted to eliminate any of these other considerations by using a ceteris paribus clause, which means that all other considerations are equal. The reason it was strange that you used this method of argument is because of what it entails: according to your logic, a player should only choose based on hardware economy alone IF AND ONLY IF all three consoles share the same hardware specifications, the same lineup of titles, same controls, same online systems, same types of accessories, and so forth.

So yes, if all those things are the same, and the only difference is how much hardware you’re getting for your dollar, then OF COURSE you would choose based on that factor. But it is not the only factor. Your ceteris paribus clause does not apply. All things are not equal, and you cannot make it so simply by invoking a single cryptic Latin phrase in your article. Next time, try to formulate a more solid argument instead of trying to prop it up with Latin phrases that you are hoping that no one else knows.

I don't understand where you're going with this. The assumption of all else being equal makes this conclusion completely inapplicable.

The hardware is worth nothing to gamers; it's the gameplay that has worth. So why should anyone pay $400 for gameplay he does not want?

No, I am not getting anything "for free" by purchasing a PS3 or Xbox 360. It's the same thing as those "Punch the monkey and win a free* iPod!" ads. Yes, I can get a free iPod, but only upon the purchase of other products which I do not want. I do not want that $400 worth of hardware in an Xbox 360, even if I get $200 more for free. You are not paying nothing for something. It may be a good deal, yes, but it is not at all free. Unless I can sell the separate hardware components back to the market at full price and actually make a monetary profit with which to buy myself a Wii, as a rational consumer, I have no reason to buy a 360.

The term 'rational consumers' and buying the PS3 should not be used in the same sentence.

Sony and Microsoft are selling at a loss because their systems cost like 10x more then the Wii. If they weren't so much then they wouldn't be doing it. Simple as that. No company wants to loss money, but Microsoft and Sony had no choice, they wanted revolutionary graphics and they paid for it. Nintendo wanted a revolutionary way to play games and they paid for it, it just so happened to be a lot cheaper. I'd rather spend $250 and give Nintendo a profit, then spend $600 and watch Sony go belly-up.

"Most comments below are ignoring the ceteris paribus stipulation of the argument. For this argument to work, one must assume that all else is equal."

So if ALL else is equal - the consoles' power, performance, features, line-up, price are all exactly the same, you think the only logical choice as a consumer would be to pick the one the manufacturer is making the biggest loss on?

No, that argument still doesn't make sense, no matter what stipulations you place on it.

As a consumer, I'm going to buy the console that represents the best value for money. Now, that might not necessarily be the cheapest one available, but it certainly isn't just the one built by the company with the worst business model.

Ceteris Paribus is a term used in economics for "all else equal." But it's main function is to put the concepts in basic terms. As people, we understand that nothing is Ceteris Paribus....ever. There are many, MANY things that effect people's preferences and purchase.

The concept presented in this editorial is what happens when you measure value by how much you're screwing the other guy. In reality, the only worse way to measure value is by labor.

Now, the full-featured Wii will cost you and I about half to two-thirds the price of a full-featured 360 or PS3. For that price, you'll get (what I believe to be) the best controller yet made, DS integration, parity to XBox on the networked game service, and a game lineup that's shaping up to be pretty awesome.

Further, your assertion that if they believed in it, they'd be willing to take a loss is complete and utter nonsense. If anything, it's the exact opposite of what we as consumers should conclude: in reality, they are so confident in the value of their product, they know that they can price it to make a profit and still believe that they are going to have trouble making enough to satisfy demand.

Entering into an exchange that leaves you with less (less money, fewer games: less value) doesn't mean you made a good choice. Even if you managed to screw the other guy over. That's actually a "lose-lose" agreement, which is the exact opposite of the decision making that rational people do. With that kind of economic math, we'd be back to hacking at each other with sticks in very short order.

All other things are not equal, though. All you did was apply an economic spin to the "hardware" side of the "hardware vs. games" argument. The "hardware" side is still completely clueless, imo. I'm still going to be paying 350 dollars less, and I will simultaneously immensely increase ability to pretend to play tennis, stab a guy, or use magic.

lol

I think that the supposition of the author is one that does not really say anything. "All else being equal" just cannot apply. If a company were to sell computers, and subsidize their prices in order to drive sales, then yes, any logical being would buy from them. Unless they have brand loyalty (which is monumentally important in the gaming industry) or are turned off by going the cheap route. In short, nothing is equal, so stating that people would probably like to save money if consoles were on a level field is like saying that people would rather have jam made with strawberries than beansprouts. And on the concept of corporate confidence, none of us have any idea which company is more confident. In fact, they are likely all as confident, because in the 500 stages of console development, executives have OK'ed every step. They all believe their product is superior. A perceived notion of "confidence" shouldn't register to a reasonable consumer.

Quidquid latine dictum sit, altum sonatur.

Or, to put it bluntly, "that which is said in latin sounds profound".

This article is yet more proof that Vlad is a moronic asshole. IF all consoles were equal(which they are not), then the one that stands to make the bigger profit would be the best, nevermind for people's opinions or console price. Free the world from your latin sayings. The internet should not be clogged with your bullshit.

Dude, you need to take a step back and re-evaluate your life. Its a shame there is no accurate way to format a human mind, because you really need a formatting.

It's time to deduce the obvious conclusion with professor Jesus:

Nintendo sells Wii at a profit. This means that Nintendo get more money. This means that in the near future(nearer, if the Wii sells even better), they can afford to reduce the prices of their console.

Sony and Microsoft sell their consoles at a loss. Any drop in price would have to be coupled with cheaper manufacturing processes.

Whoo whoo, here comes the clue train, last stop is you:

If Sony and Microsoft sold their consoles at a profit, then any potential market they could attract would be effectively destroyed.

QED, bitch