Gaming Industry Analysis
Batch of 2018-2020
IILM GRADUATE SCHOOL OF MANAGEMENT
Nature of Market
Nature of elasticity
The economic sector involved in the marketing, development, and monetization of video games is the Video game sector. With around 10 players enjoying good amount of profit, in this report we have tried to find out the following answers related to Gaming industry I.e. Nature of market and features, Demand-Supply Analysis, Nature of Elasticity, Government rules and regulations and how price and quantity determined. After going through this report you will get clear knowledge about market forces determine the price in the market. How Oligopoly market is different from other types of market.
In Globally, Gaming market offers huge potential in GDP as it has grown from small markets to mainstream. This year the industry generated a record $137.8 billion revenue, from $121.7 billion in 2016 Globally. The spectacular growth of this industry proves video game developers, artists, and storytellers are the brightest lights in the economy. Gaming industry is rich sector in 1st and 2nd world countries but lately its growing in large scale in 3rd world countries. Most people do games in PCs. As for the console market there are no restriction. All the non console gamers who were unable to afford are now switching from PCs to console or upgrading their PCs.
The increasing demand and increasing consumers base for gaming makes it a market of more than $180.1 billion till 2021 with rate of more than 55%.
Gaming industry scenario Analysis
Nature of Market
Oligopoly Market, Gaming industry have many buyers and few sellers with complete knowledge of the product as the product offered for sale is somewhat homogeneous in nature.
As we discussed above Gaming industry is following oligopoly market trend. Therefore, it must have following given features:
1. Monopoly power: One of the key features of oligopoly is there are only a few firms and each firm has a large share. As gaming industry have few sellers namely Activision, Electronic arts, Ubisoft, Microsoft, Apple, Tencent, Sega. They controls their share in the market.
2. Indeterminate demand: The demand curve under oligopoly is indeterminate because any steps taken by his rivals may change in the demand curve.
3. Interdependence: If any firm starts advertising and starts making new strategy to capture the market , it will surely provoke countermoves on the part of rival firms in the industry. Thus different firms are closely interdependent to each other.
4.Barriers to Entry of Firms: As there is tough competition in this industry there are barriers to entry. The existing firm have placed themselves in the market in such a way that it’s impossible to get into market and capture it.
Demand Analysis: Demand analysis will help us in better understanding of factors which affects the demand of Games in market. Given below are some of the determinants
1. Price: Its one of the major determinant. In this 2 major category is focused first is Software and then the Hardware. Due to high pricing many gamers tend to download game from online but again nowadays because of High-end games Lack of hardware upgrades is found and to go for up gradation it costs very high price.
2. Game appeal ; type the taste and preference: When a game is released it is played for some reasons like accomplishment, imagination, socialization, recreation, and subversion. When a gamer doesn’t find any of this goals then the game is a drop.
3. Game platform: Nowadays most of new games are launched in high end consoles leading PC player to wait for game to launch in pc. This is a major drawback as customer retention for this games tends to crash after sometime.
Supply analysis: This will help us in better understanding of factors which affects the supply of Games in the market. given below are some determinants:
1. Quality : It is still a major driver of video game sales. The results suggest that consumers try to spend their money rationally by purchasing the titles that critics consider qualitatively superior. There is certainly a chance that many consumers do, it is also possible that people buy games based on positive word of mouth from people they know or some other source.
2. Genre : The lack of significance for genre suggests that developing a game in a popular genre is not enough to generate sales. While it is true that some releases in the first person shooter genre, for example, have enjoyed massive success, there is no guarantee that making a certain type of game will generate consumer interest. Another example we can take that the amount of supply of first person shooter genre is more than of a strategy game genre in the market.
3 Piracy : Nowadays it has been a major reason that affects sales of game in the market. As some games are highly charged many users tend to download through torrent. As per European commission’s new report an average of 51% off all EU adults, and 72% of all EU minors have illegally downloaded or streamed entertainment content. For games, 20% of respondents admitted to have illegally downloaded games, and 18% admitted to playing on a console.
Nature of Elasticity of Demand
*Price Elasticity : It means change in quantity demanded of any product due to change in price. In case of Games, Demand remains elastic because there is a chance of change in quantity demanded for games since it can create much change in mind of customer purchasing power due to other factors. Here elasticity is high.
Income Elasticity : It means change in quantity demanded of any product due to change in income of customer. In case of product like toothpaste we can see zero income elasticity. As increase or decrease in consumers income will not affect its consumption because consumers can easily download games or get a pirated copy of it.
*Cross Price Elasticity : It happens when change in price of a product or service A have an effect on demand of product B. For example : If company A selling their game in high price compared to B. B’s demand of the game will rise as consumers will look for different alternative to play game.
Government Restrictions/ Laws/ Regulations with Gaming Industry
1. Rating department: Entertainment Software Rating Board(ESRB) 1999
• Early Childhood (titles suitable for young children)
• Everyone (suitable for all, but may have some mild fantasy violence or language)
• Everyone 10+ (ages 10 and older)
• Teen (ages 13 and older)
• Adult (18 and older, because that extra year is going to make a huge difference, presumably)
• certain warning labels to be placed on video games that are given certain ratings due to violent content
2. Data protection and privacy law: In India Section 43A of the IT Act explicitly provides that whenever a corporate body has or deals with any sensitive personal data or information, and is negligent in maintaining a reasonable security to protect such data or information, which can or cause wrongful, then such body corporate shall be liable to pay damages to the person so affected.
3. Advertising Law: Advertising standards authority It states that no false advertisement should be done. Advertising is prohibited if found deceptive and unfair as it can likely to mislead customer and affects customers behaviour.
4. Taxation: In US gaming houses that make revenues up to $20 million will be taxed at a rate of 20 percent; those making between $20 million and $40 million will be taxed at a rate of 25 percent; those that make between $40 million and $60 million at a rate of 30 percent; those making between $60 million and $80 million at a rate of 35 percent; those making between $80 million and $100 million at a rate of 40 percent; and the gaming houses generating more than $100 million is 50 percent.
Price quantity determination
Under oligopoly competition, the buyers and sellers can influence the market price by increasing or their purchase or output respectively. The market price of product in oligopoly is determined by the Industry itself. This implies that in oligopoly the market price of the product is determined mainly by the strategy followed by other players. The marginal cost curve of the industry passes through the marginal revenue curve so that change in cost will not affect quantity demand and price changes.