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Zerge Zandueta
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Learning Corner
Eco Lesson of The Week : Determinants of Supply and Demand
The intersection of the supply (upward sloping) and demand (downward sloping) curves is called the equilibrium pt. This point represents the price at which goods are sold and purchased at the market. However,
this equilibrium point may change depending on a shift by the curves. The curves may shift one at a time or at the same time both either upwards or downwards. An upward
shift by either curve would raise the price, while a downward shift would lower it.
What we want to know this week is what causes these shifts in supply and demand, called their determinants.
The Determinants of Supply
1. Costs of production
2. Profitability of alternate goods in supply
3. Natural occurences
4. Expectations of future prices
5. Profitability of goods in joint supply
6. The number of sellers
The Determinants of Demand
1. Tastes, fashions, preferences
2. The number and price of related goods
3. Income
4. Expectation of future prices
5. Population
By: Clay Bennet (The Christian Science Monitor, Boston)
By: Thomas Boldt (The Calgary Sun, Alberta, Canada)
Friday, October 12, 2007
I've got this X-box right where my heart used to be
I've got this X-box right where my heart used to be By Zerge Zandueta
About four months ago, I went to Powerplant with my family and entered this store called Mobile 1. I was just wandering around and ended up inside this store since it sold it electronic gadgets. Being a boy, these are the sort of things that attract you. Girls may never understand but I was awestruck when I saw the new PS3 in display. It was so sleek, so black, so sexy I wanted to hug it. I haven’t seen a game actually played on it, but externals alone, it was a sight to behold. As jaw dropping as it was in appearance, its price was even more so – P57,699. That’s fifty seven thousand six hundred ninety nine smackers for a console.
How much to sell my spare kidney to afford the PS3 is not the topic of this entry. What I’ll talk about here is the video game console industry and how they operate.
There are three video game console giants in the world today. Two come from Japan – Nintendo and Sony, while the third is Bill Gates’ Microsoft. Sega was formerly in the mix before troubled times relegated them to being only video game producers. Given the number of these companies, it is obvious to see that they are in an oligopolistic market structure. While Sony and Nintendo also sell handheld devices (PSP, Gameboy/DS), I’d like to direct our focus on their next-gen consoles: PS3 for Sony, Wii for Nintendo, and Xbox 360 for Microsoft. These three companies account for all the production of video game consoles around the world. Unlike in other oligopolistic structures such as gas, differentiation is essential to sell their respective products. And so these 3 have different features. For example, the Wii focused on family-based fun with their interactive remote. Sony, for its part, developed a monster of a machine (3.2 GHz processor, 20/60 GB internal HDD memory, etc.) with a capability of playing Blu-Ray (the next gen DVD format). The Xbox 360 is set up as a slightly weaker version of the PS3 but is cheaper and already has a ton of games out in the market. Other competitors can’t easily enter this market since the companies have a natural barrier to entry. First of all, these three companies are already way ahead in terms of technology. These companies actually have plants and formal work teams devoted solely for the conceptualization and production of the consoles. They have research and development teams who focus solely on developing the product and their suppliers are scattered all around the globe. Secondly, they have an established reputation and are household names (in fact, the spell checker in Word doesn’t even underline these brands anymore).
As of the moment, the Wii, despite being the least graphically appealing of the three consoles, is beating the other two in terms of sales. Despite being behind on every aspect of machine performance, the Wii is winning the hearts of people everywhere. The console could be found in day-care centers and home for the aged alike. Although sales reflect the Xbox 360 ahead by 1.28M (units sold) as of May, pundits say that the Wii has already overtaken the Xbox 360’s sales last September. Microsoft had the early advantaged since it released the console some months before Nintendo did.
Looking into the strategic decision-making that goes on in oligopolistic markets explain part of the reason why. An oligopolistic firm must always weigh their competitors’ reaction to a decision they make. Aside from this they must take into account decisions already made by their rivals before arriving at their own. The Nash Equilibrium, which applies to this kind of market structure emphasizes that, “Each firm is doing the best it can given what its competitors are doing.” Most of the oligopoly models taught to us in class are based on the oligopolistic players selling a homogenous good. So, I can’t really see how they can be applicable in this scenario of the video game console industry. However, the fact is ascertainable that Nintendo very well took into account the decisions made by its competitors in producing its console, the Wii.
The trend in the video-gaming industry has always been towards improving visuals and graphics. Since the days of Pacman, computer gaming has very much evolved into producing such life-like characters as Solid Snake, Claire Redfield, and the new Pacman himself - Manny Pacquiao (Fight Night 3). Video-games nowadays just keep on looking better and better. Taking into consideration the fact that its competitors would continue on with this trend, Nintendo opted to take another road. They decided to sacrifice graphics to make a highly-entertaining, family-based, interactive console in the Wii. The remote you use while playing actually motion-captures your moves, so this time around, you don’t mash buttons – instead you punch, slash, and swing at air. Because they decided to use a lesser technology in terms of graphics, they were able to lower their price at around P20K. As it turns out, their strategy worked like a charm. Instead of competing at making their console meaner and more powerful, they were able to create a niche in the market previously unaddressed before. In their strategic decision making, they were able to gain an advantage.
Perhaps another fact that contributed to Nintendo arriving at such a strategy was the fact that their previous console, the Gamecube was such a flop in comparison to the Xbox and PS2. Being able to set their own prices, the big 3 in the video game console industry has to create a demand for their product. Let’s face the facts, video gaming consoles aren’t really a necessity. When demand for a console lowers, sales drop and the company faces the possibility of a loss in its investment. The drop in demand for the Gamecube during 2002 cost it a lot of money, since they have factories put up to supervise the console’s production. Without profits, they can’t recover the costs spent for these factories, sunk as they may be. So to increase demand, the company lowered the console’s price. The strategy worked, and the other two competitors were at the same time hurt by the move, having to slash some off their price to avoid losing too much market share to Nintendo. This previous experience in gaining an advantage by using a low price may have had a say in the company’s strategy with the Wii. So past decisions count too in an oligopoly.
Okay, okay. So what I’ve probably talked about was pretty boring. Yup, I’ll be the first to admit, I kind of got bored writing it too... I hope you learned something though. In any case, I can assure you, reader, that playing one of the mentioned consoles would erase your boredom. Promise!
So see ya around, I’m off to the hospital.
“When a man with experience meets a man with money, the man with experience ends up with the money and the one with the money ends up with the experience.”
woah, don't really know much about game consoles, but i admit, I wanted a wii system for our home. So I guess they did a good job in carving out a niche market from an unlikely industry.
Name: Leontief Lovers Home: Manila, Philippines About Me: people wonder why we are called leontief lovers. it's simple, in eco, there is a canonical form of utilty and production function called Leontief Preferences / Technologies. In a two good/input world, you always would need the other good/input in order to remain satisfied/have the ability to produce... in other words, you will never substitute one good for another, you need to consume/use both goods at a fixed proportion at the same time... LIKEWISE, in our blog, WE WILL NEVER TRADE NOR SUBSTITUTE ECO FOR ANOTHER! See my complete profile
An economics professor and a student were strolling through the campus.
"Look," the student cried, "there's a $100 bill on the path!"
"No, you are mistaken," the wiser head replied. "That cannot be. If there were actually a $100 bill, someone would have picked it up."
Feudalism: You have two cows. Your lord takes some of the milk. Socialism: You have two cows. State takes one and gives it to someone else. Communism: You have two cows. State takes both of them and gives you as much milk as you need. Bureaucratic Communism: You have two cows. State takes both of them and gives you as much milk as the regulations say you should need. Bureaucracy: You have two cows. State regulates what you can feed them and when you can milk them. Then it pays you not to milk them. After that it takes both cows, shoots one, milks the other and pours the milk down the drain. Then it requires you to fill out forms accounting for the missing cows. Fascism: You have two cows. State takes both of them and sells you milk. Nazism: You have two cows. State takes both of them and shoots you. Liberalism: You have two cows. State dosen't care whether you exist, let alone your cows. Capitalism: You have two cows. You sell one and buy a bull.
PRICE IS IMPORTANT! (disclaimer: may be a little off-color)
"My Dear, would you go to bed with me for a million dollars?"
"Well, yes, I guess I would."
"How about $100?"
"What kind of person do you think I am?"
"My Dear, we have already established that. We are merely haggling over the price!"
woah, don't really know much about game consoles, but i admit, I wanted a wii system for our home. So I guess they did a good job in carving out a niche market from an unlikely industry.