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The competition within the video game console market as subset of the video game industry is an area of interest to economics with its relatively modern history, its rapid growth to rival that of the film industry, and frequent changes compared to other sectors.[42]The more recent console generations have also seen multiple versions of the same base console system either offered at launch or presented as a mid-generation refresh. In some cases, these simply replace some parts of the hardware with cheaper or more efficient parts, or otherwise streamline the console's design for production going forward; the PlayStation 3 underwent several such hardware refreshes during its lifetime due to technological improvements such as significant reduction of the process node size for the CPU and GPU.[45] In these cases, the hardware revision model will be marked on packaging so that consumers can verify which version they are acquiring.[46]

In other cases, the hardware changes create multiple lines within the same console family. The base console unit in all revisions share fundamental hardware, but options like internal storage space and RAM size may be different. Those systems with more storage and RAM would be marked as a higher performance variant available at a higher cost, while the original unit would remain as a budget option. For example, within the Xbox One family, Microsoft released the mid-generation Xbox One X as a higher performance console, the Xbox One S as the lower-cost base console, and a special Xbox One S All-Digital Edition revision that removed the optical drive on the basis that users could download all games digitally, offered at even a lower cost than the Xbox One S. In these cases, developers can often optimize games to work better on the higher-performance console with patches to the retail version of the game.[47] In the case of the Nintendo 3DS, the New Nintendo 3DS, featured upgraded memory and processors, with new games that could only be run on the upgraded units and cannot be run on an older base unit.[48]

Consoles when originally launched in the 1970s and 1980s were about US$200-300,[41] and with the introduction of the ROM cartridge, each game averaged about US$30-40.[49] Over time the launch price of base consoles units has generally risen to about US$400-500,[41] with the average game costing US$60.[49] Exceptionally, the period of transition from ROM cartridges to optical media in the early 1990s saw several consoles with high price points exceeding US$400 and going as high as US$700. Resultingly, sales of these first optical media consoles were generally poor.[41]

When adjusted for inflation, the price of consoles has generally followed a downward trend, from US$800-1,000 from the early generations down to US$500-600 for current consoles. This is typical for any computer technology,

When adjusted for inflation, the price of consoles has generally followed a downward trend, from US$800-1,000 from the early generations down to US$500-600 for current consoles. This is typical for any computer technology, with the improvements in computing performance and capabilities outpacing the additional costs to achieve those gains.[41] Further, within the United States, the price of consoles has generally remained consistent, being within 0.8% to 1% of the median household income, based on the United States Census data for the console's launch year.[41]

Console pricing has stabilized on the razorblade model, where the consoles are sold at little to no profit for the manufacturer, but they gain revenue from each game sold due to console licensing fees and other value-added services around the console (such as Xbox Live).[39] Console manufacturers have even been known to take losses on the sale of consoles at the start of a console's launch with expectation to recover with revenue sharing and later price recovery on the console as they switch to less expensive components and manufacturing processes without changing the retail price.[50] Consoles have been generally designed to have a five-year product lifetime, though manufacturers have considered their entries in the more recent generations to have longer lifetimes of seven to potentially ten years.[51]

The competition within the video game console market as subset of the video game industry is an area of interest to economics with its relatively modern history, its rapid growth to rival that of the film industry, and frequent changes compared to other sectors.[42][52]

Effects of unregulated competition on the market were twice seen early in the industry. The industry had its first crash in 1977 following the release of the Magnavox Odyssey, Atari's home versions of Pong and the Coleco Telstar, which led other third-party manufacturers, using inexpensive General Instruments processor chips, to make their own home consoles which flooded the market by 1977.&#

Effects of unregulated competition on the market were twice seen early in the industry. The industry had its first crash in 1977 following the release of the Magnavox Odyssey, Atari's home versions of Pong and the Coleco Telstar, which led other third-party manufacturers, using inexpensive General Instruments processor chips, to make their own home consoles which flooded the market by 1977.[53]:81–89 The video game crash of 1983 was fueled by multiple factors including competition from lower-cost personal computers, but unregulated competition was also a factor, as numerous third-party game developers, attempting to follow on the success of Activision in developing third-party games for the Atari 2600 and Intellivision, flooded the market with poor quality games, and made it difficult for even quality games to sell.[54] Nintendo implemented a lockout chip, the Checking Integrated Circuit, on releasing the Nintendo Entertainment System in Western territories, as a means to control which games were published for the console. As part of their licensing agreements, Nintendo further prevented developers from releasing the same game on a different console for a period of two years. This served as one of the first means of securing console exclusivity for games that existed beyond technical limitation of console development.[55]

The Nintendo Entertainment System also brought the concept of a video game mascot as the representation of a console system as a means to sell and promote the unit, and for the NES was Mario. The use of mascots in businesses had been a tradition in Japan, and this had already proven successful in arcade games like Pac-Man. Mario was used to serve as an identity for the NES as a humor-filled, playful console.[44][56] Mario caught on quickly when the NES released in the West, and when the next generation of consoles arrived, other manufacturers pushed their own mascots to the forefront of their marketing, most notably Sega with the use of Sonic the Hedgehog.[57] The Nintendo and Sega rivalry that involved their mascot's flagship games served as part of the fourth console generation's "console wars". Since then, manufacturers have typically positioned their mascot and other first-party games as key titles in console bundles used to drive sales of consoles at launch or at key sales periods such as near Christmas.[44]

Another type of competitive edge used by console manufacturers around the same time was the notion of "bits" or the size of the word used by the main CPU. The TurboGrafx-16 was the first console to push on its bit-size, advertising itself as a "16-bit" console, though this only referred to part of its architecture while its CPU was still an 8-bit unit. Despite this, manufacturers found consumers became fixated on the notion of bits as a console selling point, and over the fourth, fifth and sixth generation, these "bit wars" played heavily into console advertising.[11] The use of bits waned as CPU architectures no longer needed to increase their word size and instead had other means to improve performance such as through multicore CPUs.[11]

Generally, increased console numbers gives rise to more consumer options and better competition, but the exclusivity of titles made the choice of console for consumers an "all-or-nothing" decision for most.[52] Further, with the number of available consoles growing with the fifth and sixth generations, game developers became pressured to which systems to focus on, and ultimately narrowed their target choice of platforms to those that were the best-selling. This cased a contraction in the market, with major players like Sega leaving the hardware business after the Dreamcast but continuing in the software area.[42] Effectively, each console generation was shown to have two or three dominant players.[52]

Competition in the console market today is considered an oligarchy between three main manufacturers: Nintendo, Sony, and Microsoft. The three use a combination of first-party games exclusive to their console and negotiate exclusive agreements with third-party developers to have their games be exclusive for at least an initial period of time to drive consumers to their console. They also worked with CPU and GPU manufacturers to tune and customize hardware for computers to make it more amenable and effective for video games, leading to lower-cost hardware needed for video game consoles. Finally, console manufacturers also work with retailers to help with promotion of consoles, games, and accessories. While there is little difference in pricing on the console hardware from the manufacturer's suggested retail price for the retailer to profit from, these details with the manufacturers can secure better profits on sales of game and accessory bundles for premier product placement.[42] These all form network effects, with each manufacturer seeking to maximize the size of their network of partners to increase their overall position in the competition.[52]

Of the three, Microsoft and Sony, both with their own hardware manufacturing capabilities, remain at a leading edge approach, attempting to gain a first-mover advantage over the other with adaption of new console technology.[42] Nintendo is more reliant on its suppliers and thus instead of trying to compete feature for feature with Microsoft and Sony, had instead taken a "blue ocean" strategy since the Nintendo DS and Wii.[58]