Why I'm sure the Wii U will release at $250 to $300

[freedquaker]

One of the grave mistakes done in calculating the relative price of the consoles in a time-series is to use the so called inflation adjusted price/cost approach, by ignoring the relative trend in specific industries...

Now guys listen... The cumulative CPI from 1985 to 2011 in USA is around 227, which means the relative Consumer Price basket has increased from $100 in 1985 to $226... By that logic, the NES. which was nominally priced at $199 back then, would equal to $199*2.227 = $452 .... However, this doesn't add up! People would never pay that kind of money then, just like they would never pay it today, especially to a toy!

When you make such calculations, you CANNOT use the GENERAL price level to convert the nominal data to the REAL values. In fact you have to use the industry specific data! In this particular case, the industry is the computer industry and prices have generally been declining... In other words, the inflation specific to computer industry is negative! So given the equal conditions, it's totally normal to expect "lower" or "equal" prices from the consoles...

This is particularly true since people's perceptions are not absolute but relative to other items... When all other technological products are decreasing in price, you cannot expect people to attribute a higher value to consoles. So the relative value of $199 in 1985 is probably not higher today but lower as a matter of fact (since technology is so much cheaper).

If there is a price increase in consoles, it's mostly because of two factors:

a) The increase in the expectations and abilities of the consoles : NES could only play games... PS3, on the hand does a lot more other stuff, which also contribute to its cost, value and price

b) The general increase level in CPI also implies a relative increase level in "wages": People therefore have relatively a higher purchasing power of technology, which in turn increases the demand for it, along with an increase in price and consumption.

In Conclusion, The technological progress pressures the prices down while the increase in the abilities of consoles and people's purchasing power of technology push it upwards, ending up with a relatively stable pricing path.