The problem is, that we have a very gradual increase in price here, something we didn't have for Video games. Nobody seems to want to exceed the 60$ pricetag for a new game. And the 600$ is considered a similar mark. But the way hardware goes, that one will have to fall some day.
Inflation is also a bad parameter when you have other things that go against it. If you exclude Tetris and Mario, what games even made it past the 1 million mark before the turn of the century? During the 6th and 7th generation, especially with PS2 and Wii, video gaming exploded in numbers, more than offsetting the inflation with sheer sales numbers. Nowadays, A game selling less than 1M is a huge disappointment unless it's an indie title, but 20 years ago, selling over 100k was already a big success.
You also have to consider that publishers at the time released up to 30 games a year to have something for every quarter; now with the microtransactions, DLC, and so on, they got those covered with a stable baseline and release half a dozen a year at best, which also cuts down on development costs. They don't have to raise the prices with their in-game sales, further cementing the notion of fixed pricing in the videogame scene.
Average sticker prices for games came down in Gen 5 as the CD format allowed for lower manufacturing costs. The N64's carts were still normally priced $60-70, while most PS1 games starting around 1997 ran from $40-50. Then at the start of Gen 6 we saw a price hike for disc-based games (by then the only format), with $50 becoming the standard. Then another hike to $60 at the start of Gen 7 for PS3 & 360 games, with Nintendo making the leap to $60 with the Wii U. Then game prices just kind of stayed like that, with digital add-on content making up the shortfall.
Also, a great many games in from Gens 3, 4, & 5 were million-sellers, and not just Mario and Tetris. Wikipedia has multiple lists of best-selling games by platform. The NES alone had at least 75 million-selling games. Two gens later, the PS1 & N64 had at least 159 million-sellers between the two of them.
OK, this is ridiculous. While I think ignoring inflation is wrong, you can't compare bread with a luxury item like video game consoles. People need to buy bread, even if they can't afford luxury. In fact increasing prices on basic items like food might cut short expenses for luxury.
Also looking at inflation alone is outright wrong. If inflation grows slower than incomes, then people have more moeny to put on luxury items. If it is the other way around, the people stopÂ buying luxury stuff.
The comparison with past consoles is also faulty, because most of them were bought by a small amount of people. Exactly as you would expect of expensive items. As I said before, intensive gamer like us pay pretty much everything for our hobby, but other people prioritize it lower. Each higher pricepoint leads to lost sales. How much is hard to gauge. But this fight about bread and inflation and stuff does really not help to answer this question.
@First bolded: Most basic necessities like food, clothing, and electricity have remained relatively constant and in many cases even declined over time when adjusted for inflation, at least in the U.S.
@Second bolded: Average household incomes in the U.S. in every quintile below the top have remained relatively stagnant when adjusted for inflation over the past 40 years, with no clear upward or downward trend. Seeing as basic necessities aren't consuming a larger portion of income now as they did 10-20-30 years ago, then the amount of money the average person has to spend on luxuries hasn't declined, either. Hell, even during the Great Recession spending on gaming accelerated instead of declining (total PS3+360 hardware sales alone increased almost 27% from 2007 to 2009), so even a major downturn didn't dissuade consumers from buying game consoles.
@Third bolded: Except it wasn't a "small amount of people." The NES and PS1 both sold roughly 30M units in the U.S. The SNES and Genesis were something like 38M between the two of them. Those aren't small numbers. Yes, the market has expanded from what it was 20-30 years ago (the PS3 & 360 sold 70M combined in the U.S.), but not because of anything to do with the costs of gaming. Consoles just got more mainstream.
Specs aside, history has proven time and again that a base SKU cannot exceed $399 and achieve widespread adoption. I suppose if both Sony and MS launched at $499, it would be interesting to see how that played out. But, if one of them is at $399, and the other at $499, I suspect the $399 will win handily. We've seen it over and over again.
And, yes, inflation..... But, inflation in video games has not been a thing.
Because history only goes up to just before right now, and by the start of Gen 8 the value of a dollar declined enough to allow a $400 console to succeed.
I suppose 18 years ago someone might have said "a base SKU cannot exceed $299 and achieve widespread adoption" based on the observation that the NES, SNES, and Genesis debuted at under $200, the PlayStation didn't achieve widespread success until it dropped to $199 (actually not even then, that first cut from $299 to $199 boosted sales in the U.S. from Wii U levels to GameCube levels; it wasn't until FFVII that the PS1 really took off), and the Saturn failed miserably at its $399 launch price. In the 90s, $399 was a deal-breaker. Now? Not so much.
Despite your assertion to the contrary, inflation most certainly does matter in the video games market. A sticker price that was exorbitant 25 years ago is reasonable today, and one that was reasonable is now bargain basement prices (the SNES, Genesis, and PS1 were all under $150 after two years, which would be dirt cheap for a two-year-old console today). $500 really ought not to be considered outrageous for a next-gen console at launch in 2020. The dollar has lost 8.3% of its value already since the PS4 came out. $400 in 2013 will be the equivalent of around $440-450 by the end of next year. $500 isn't excessively more than that.
And let's not forget price cuts are a thing. Even if the PS5 and Xbox 4 launch at $500 instead of $450, they'll get permanent price cuts and temporary deals. Within two years, their base price ought to have been cut by as much as 20%, and Black Friday deals will knock another $50-100 off. They won't stay $500 forever.
That's part of the point. What would happen if a gimped version sells for $400 and a fully realized one for $500? Is the price point really making the console more accessible, if the later outsells the former? It happened before with consoles priced both cheaper and more expensive, after all.
Besides, I don't think I quite get your PS3 argument. The difference between 400 and 500 matters, but between 500 and 600 suddenly doesn't, anymore... because it crossed an arbitrary threshold of expensiveness, beyond which people can afford to shell out more money?
Anyway, that discussion is moot. Market analysis nowadays is much more advanced, complex and deep than it was 10 or 15 years ago. Sony and MS should know what they need to do (and how to price their stuff) better than any of us can argue.
You're right that the more expensive 360 & PS3 SKUs sold better. This article explicitly states that the 60GB PS3 sold better than the 20GB SKU. http://www.gamepro.com/news.cfm?article_id=129068">This old article states that 80% of 360 owners at the time owned a hard drive; it doesn't say whether or not they bought a Core SKU and got the HDD separately, or they just went ahead and bought the Pro SKU, but it's clear that the vast majority of 360 owners saw the value of a hard drive, just as a majority of early PS3 owners were more willing to shell out an additional $100 for a hard drive three times larger than the $500 SKU's HDD. It does demonstrate that, in principle, people will pay more for a thing if they feel there's a good value proposition that comes along with the higher sticker price.