Oligopoly Paper

George Walker (25010673)

In 1972 the first commercial home video game console was released, The Magnavox Odyssey designed by Ralph H. Baer starting the Home TV Game Market (Baer, 2014). Since then, generations upon generations of new consoles have been brought to a growing market now worth $91.5 billion that is projected to reach $107 billion in 2017 (Newzoo). The gaming industry produces profits through two main sources, hardware and software. Hardware comprises of mostly console sales themselves but also controllers and other accessories to enhance the gaming experience. While software is most commonly recognized as the games which are played on the consoles. The target market in the games industry is huge where the UK alone has an estimated

An oligopoly can be defined as ‘a market where there are a small number of large producers who supply a product that is differentiated in some way’. (Worthington and Britton, 2015). This is exactly the case with games consoles as there a three distinct companies who together own the whole market. We can see by looking at the UK sales market share figures (Fig.1) how this is the case. In 2013 Sony and Microsoft were closely competing as the UK best-selling console makers with their PS3 and Xbox 360 consoles owning a 26% share each. In 2014 the release of the PlayStation 4 grew Sony’s share to 49. Meanwhile, Microsoft’s new generation Xbox One also showed solid progress and outsold its predecessor Xbox 360 for the first time, doubling its share to 44% of UK total sales in excess of 3 million units. This highlights how Nintendo is struggling to market its Wii range. As a result, the combined Wii market share declined from 9% in 2013 to 6.5% of total unit sales in 2014. (Mintel Academic, 2015) Although it looks like there are two main players in the market in Microsoft and Sony, Nintendo are in fact just as big. Despite poor performance in the static console segment, Nintendo is by far the leading player in the portable console segment, where its 3DS series accounts for 86% of unit sales. Nonetheless, the portable console segment only accounts for less than a fifth of static console sales (at just below 600,000 units sold in 2014), and Mintel data suggests that this trend is set to continue in future years as handheld consoles become more and more a specialist product. Concentration ratios are used to assess the extent to which a given market is oligopolistic. Although there is no definitive 'rule' about what ratio constitutes an oligopoly, a 3-firm concentration ratio of over 80% would indicate a highly oligopolistic market (Economics Online, 2015). We