Forums - Gaming Discussion - PS5 or Xbox Scarlet will probably price around 499 to 549 USD

Tagged games:

What do you think

Time to quit gaming 4 10.00%
 
Life must go on 8 20.00%
 
This price is cheap 0 0.00%
 
I need to sell my kidney 2 5.00%
 
I am willing to pay for the sake of gaming 8 20.00%
 
I don't care about price ... 18 45.00%
 
Total:40
Shadow1980 said:
The_Liquid_Laser said:

I hear a lot of people making "inflation arguments".  The problem with these arguments is that the market does not respect inflation when it comes to electronics.  All of my life a low end computer has been around $500, a mid-range about $1000 and a high-end $2000+.  Those prices have still not really changed except maybe the range has widened, i.e. the low-end is even lower and the high end is higher.  The average price hasn't really changed though.  When it comes to electronics, people expect the quality to improve and the price to stay roughly the same.  This goes for TVs and stereos too.  Why should we expect consoles to be different?  Console makers try their hardest to get hardware prices up, and they've had some success, but the market still resists increasing prices according to inflation.  People don't want prices to increase for electronics.

$500 is too expensive a launch price for a console.  Will it sell?  Yeah, eventually...when the price drops enough.  Expect it to sell slowly for the first few years though.  Even the PS3 started to sell eventually when the price dropped enough.  It was a good machine, but it was just too expensive at launch.  Your chart has the Genesis as more expensive than the SNES, and that is because the Genesis launched 2 years before the SNES.  The Genesis sold pretty poorly for its first couple of years, but when the SNES came out the Genesis could drop its price to get a price advantage.  All of the sudden Nintendo and Sega had a serious competition, because the Genesis had a price advantage.  Any good console can sell eventually, even with a high launch price, but don't expect it to sell well for the first couple of years.

And that is the position PS5 and Scarlett are in.  Will they sell?  Yeah, eventually.  They won't sell well at first.  On top of that they are going to have cheaper competition.  Switch will be $200-$300 with a huge library of games.  Sony needs to be ok with selling poorly out of the gate.  Perhaps they are, and they are just taking the long view into account?  I do expect a lot of Sony fans to be disappointed during 2021 and 2022 though.  Be prepared for a repeat of what happened to the PS3.

The market very much does take inflation into account when it comes to electronics, because people at least subconsciously take inflation into account for everything. We're aware that the nominal prices (meaning the sticker prices) for many things have gone up over the years, or at least haven't declined, while our nominal incomes have gone up. Believe it or not, people do take note of how much of a bite things take out of their wallets. While inflation-adjusted incomes have remained stagnant for every income group except the top earners, the actual numbers on people's paychecks have generally gone up, even since the start of last generation (the average nominal income of earners in the middle quintile increased 26.7% from 2006 to 2017). 30 years ago the bottom half of earners had nominal incomes half of what they are today. 50 years ago, it was something like one-eighth. A dollar was worth seven times what it is worth today in 1969, and twice what it's worth today in 1989. Even just 15 years ago, a dollar was worth 35% more than it's worth now. People do notice these things.

Now, let's look at the cost of some major household items. Major appliances have gone up considerably over the years, many of them even in nominal terms. For example, 30 years ago a high-end side-by-side refrigerator might cost you a bit over $1000. Today, higher-end models cost several thousand, and even the cheap ones cost $850 at Lowe's. If most refrigerators had the stickers prices of today 30 years ago, people would struggle to afford one. 50 years ago? Forget about it. $850 in 1969 would be equal to almost $6000 in today's dollars. Also, in 1969, a high-end 25-inch in-console color TV cost $650, equal to over $4500 in today's dollars. That's prohibitively expensive, and why few people had a color TV 50 years ago. Today, $650 is very affordable for a TV and will get you a solid quality 4K screen. For the average person in the second-lowest income quintile, a $650 TV today is equal to about one week's salary, while 30 years ago it would have been two weeks salary and 50 years ago would be worth nearly a month and half's salary. Today's TVs are not only cheaper in absolute terms once you take inflation into account, they are bigger and better than they used to be, with the cost per square inch of screen in particular declining dramatically over time.

In regards to computers, sure, you could get an Amiga 500 for $600 thirty years ago, but that's excluding the monitor, which could drive the price upwards of $1000, which was the equivalent of a bit over $2000 today. Not exactly mass market prices. Windows PCs in the 90s were typically pretty expensive as well. Almost certainly because of those high prices, PCs didn't exceed 50% market penetration in the U.S. until around the turn of the century. But it was around the turn of the century that we started seeing prices decline to much more reasonable levels. By 2004 I was able to buy an entry-level Compaq Presario with Windows XP for about $500, monitor included. It wasn't until the 21st century that PCs got cheap enough for everyone to have one. 25 years ago they were just an expensive toy for tech geeks, or as a business tool used by big companies or educational tools used by schools, and weren't priced to be accessible and desirable to the general public.

Looking at video games, the nominal prices have indeed gone up:

During the 80s & early 90s, $200 was the norm. When the Neo-Geo was released at $400 for the basic SKU, it was absolutely prohibitive (the extremely expensive software didn't help, either. $400 was still too much in 1995, as it was one of several factors that doomed the Saturn. But $300 started to displace $200 as the accepted normal launch price. By time the PS2 came out, $300 was viewed as perfectly fine for a launch price, even though it would have been too much 10-15 years earlier. It was at that price that the PS2 posted the largest first full calendar year to date, a record that only barely edged out by the Wii in 2007. By time the PS4 came out, $400 was a reasonable launch price, even though just 20 years earlier it was seen as excessive. At $400, the PS4 managed to have the single biggest console launch ever in the U.S., and posted the third-largest first year ever, bested only by the PS2 and Wii (and even then only because it didn't have the dominant market share the PS2 had).

Even Nintendo stopped pricing their consoles at $200 a long time ago. The last console to launch at $200 was the GameCube. The Wii debuted at $250, and both the Wii U and Switch launched at $300. Adjusted for inflation, the N64, Wii, and Switch all have about the same launch price, despite launching with nominal prices of $200, $250, and $300, respectively. $300 is now considered cheap for a console, even though it would have been unreasonable 30 years ago, while $200 is a downright bargain basement price and is something you'd expect from a handheld.

$400 isn't some magical ceiling that console launch prices can never move past lest they be rejected. As time passes and the purchasing power of the dollar continues its slow but perpetual decline, prices that were once the death knell for a system become the new normal. That too will become the case for the $500 price point. Inflation has already reduced the value of a dollar considerably since the PS3 was released, as a dollar in Nov. 2006 was worth 27% more than it's worth today.

Standards of affordability as they relate to sticker prices change over time as the value of a dollar diminishes, and there's no evidence that electronic items or video games in specific are somehow exempt from this.

The only thing I want to add is that depending on the country the effect is even bigger. And us international folks can have instant inflation due to fluctuation of the dollar.

I do hope 400-500USD next gen isn't prohibitively expensive due to exchange rate over here.



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Shadow1980 said:
The_Liquid_Laser said:

I hear a lot of people making "inflation arguments".  The problem with these arguments is that the market does not respect inflation when it comes to electronics.  All of my life a low end computer has been around $500, a mid-range about $1000 and a high-end $2000+.  Those prices have still not really changed except maybe the range has widened, i.e. the low-end is even lower and the high end is higher.  The average price hasn't really changed though.  When it comes to electronics, people expect the quality to improve and the price to stay roughly the same.  This goes for TVs and stereos too.  Why should we expect consoles to be different?  Console makers try their hardest to get hardware prices up, and they've had some success, but the market still resists increasing prices according to inflation.  People don't want prices to increase for electronics.

$500 is too expensive a launch price for a console.  Will it sell?  Yeah, eventually...when the price drops enough.  Expect it to sell slowly for the first few years though.  Even the PS3 started to sell eventually when the price dropped enough.  It was a good machine, but it was just too expensive at launch.  Your chart has the Genesis as more expensive than the SNES, and that is because the Genesis launched 2 years before the SNES.  The Genesis sold pretty poorly for its first couple of years, but when the SNES came out the Genesis could drop its price to get a price advantage.  All of the sudden Nintendo and Sega had a serious competition, because the Genesis had a price advantage.  Any good console can sell eventually, even with a high launch price, but don't expect it to sell well for the first couple of years.

And that is the position PS5 and Scarlett are in.  Will they sell?  Yeah, eventually.  They won't sell well at first.  On top of that they are going to have cheaper competition.  Switch will be $200-$300 with a huge library of games.  Sony needs to be ok with selling poorly out of the gate.  Perhaps they are, and they are just taking the long view into account?  I do expect a lot of Sony fans to be disappointed during 2021 and 2022 though.  Be prepared for a repeat of what happened to the PS3.

The market very much does take inflation into account when it comes to electronics, because people at least subconsciously take inflation into account for everything. We're aware that the nominal prices (meaning the sticker prices) for many things have gone up over the years, or at least haven't declined, while our nominal incomes have gone up. Believe it or not, people do take note of how much of a bite things take out of their wallets. While inflation-adjusted incomes have remained stagnant for every income group except the top earners, the actual numbers on people's paychecks have generally gone up, even since the start of last generation (the average nominal income of earners in the middle quintile increased 26.7% from 2006 to 2017). 30 years ago the bottom half of earners had nominal incomes half of what they are today. 50 years ago, it was something like one-eighth. A dollar was worth seven times what it is worth today in 1969, and twice what it's worth today in 1989. Even just 15 years ago, a dollar was worth 35% more than it's worth now. People do notice these things.

Now, let's look at the cost of some major household items. Major appliances have gone up considerably over the years, many of them even in nominal terms. For example, 30 years ago a high-end side-by-side refrigerator might cost you a bit over $1000. Today, higher-end models cost several thousand, and even the cheap ones cost $850 at Lowe's. If most refrigerators had the stickers prices of today 30 years ago, people would struggle to afford one. 50 years ago? Forget about it. $850 in 1969 would be equal to almost $6000 in today's dollars. Also, in 1969, a high-end 25-inch in-console color TV cost $650, equal to over $4500 in today's dollars. That's prohibitively expensive, and why few people had a color TV 50 years ago. Today, $650 is very affordable for a TV and will get you a solid quality 4K screen. For the average person in the second-lowest income quintile, a $650 TV today is equal to about one week's salary, while 30 years ago it would have been two weeks salary and 50 years ago would be worth nearly a month and half's salary. Today's TVs are not only cheaper in absolute terms once you take inflation into account, they are bigger and better than they used to be, with the cost per square inch of screen in particular declining dramatically over time.

In regards to computers, sure, you could get an Amiga 500 for $600 thirty years ago, but that's excluding the monitor, which could drive the price upwards of $1000, which was the equivalent of a bit over $2000 today. Not exactly mass market prices. Windows PCs in the 90s were typically pretty expensive as well. Almost certainly because of those high prices, PCs didn't exceed 50% market penetration in the U.S. until around the turn of the century. But it was around the turn of the century that we started seeing prices decline to much more reasonable levels. By 2004 I was able to buy an entry-level Compaq Presario with Windows XP for about $500, monitor included. It wasn't until the 21st century that PCs got cheap enough for everyone to have one. 25 years ago they were just an expensive toy for tech geeks, or as a business tool used by big companies or educational tools used by schools, and weren't priced to be accessible and desirable to the general public.

Looking at video games, the nominal prices have indeed gone up:

During the 80s & early 90s, $200 was the norm. When the Neo-Geo was released at $400 for the basic SKU, it was absolutely prohibitive (the extremely expensive software didn't help, either. $400 was still too much in 1995, as it was one of several factors that doomed the Saturn. But $300 started to displace $200 as the accepted normal launch price. By time the PS2 came out, $300 was viewed as perfectly fine for a launch price, even though it would have been too much 10-15 years earlier. It was at that price that the PS2 posted the largest first full calendar year to date, a record that only barely edged out by the Wii in 2007. By time the PS4 came out, $400 was a reasonable launch price, even though just 20 years earlier it was seen as excessive. At $400, the PS4 managed to have the single biggest console launch ever in the U.S., and posted the third-largest first year ever, bested only by the PS2 and Wii (and even then only because it didn't have the dominant market share the PS2 had).

Even Nintendo stopped pricing their consoles at $200 a long time ago. The last console to launch at $200 was the GameCube. The Wii debuted at $250, and both the Wii U and Switch launched at $300. Adjusted for inflation, the N64, Wii, and Switch all have about the same launch price, despite launching with nominal prices of $200, $250, and $300, respectively. $300 is now considered cheap for a console, even though it would have been unreasonable 30 years ago, while $200 is a downright bargain basement price and is something you'd expect from a handheld.

$400 isn't some magical ceiling that console launch prices can never move past lest they be rejected. As time passes and the purchasing power of the dollar continues its slow but perpetual decline, prices that were once the death knell for a system become the new normal. That too will become the case for the $500 price point. Inflation has already reduced the value of a dollar considerably since the PS3 was released, as a dollar in Nov. 2006 was worth 27% more than it's worth today.

Standards of affordability as they relate to sticker prices change over time as the value of a dollar diminishes, and there's no evidence that electronic items or video games in specific are somehow exempt from this.

You make some reasonable points, and based on what you've said I think we can agree on two things.

1.  The nominal rate of inflation in US for (non-computer) electronics > 0%.
2.  The nominal rate of inflation in US for electronics < standard nominal rate of inflation in US.

I believe your example about TV's shows that you agree with me on point #2.  TV prices are very gradually increasing, but they are doing so at a rate that is slower than the rate of inflation.  And this is of course ignoring the fact that all electronics greatly improve in quality over time.  A high end 4K TV today might cost $3000, and that is still less, in real dollars, than the $650 25" TV from 1969, which is $4500 in today's dollars.

Computers are so inflation resistant that they basically do have a 0% rate of inflation.  When the Apple II launched in 1977 it had a nominal price of $2638 for the high end model.  You can get a very nice, high end, computer today for about the same price.

So that leads us to consoles.  Obviously consoles do increase in price.  To state my point more clearly: console prices don't keep up with inflation.  Nominal inflation for consoles in US < standard rate of inflation in US.  The Atari 2600 launched in the US for $199.99 in 1977.  That would be worth $665.31 in 2006, the launch year of the PS3.  Think about that.  The Atari 2600 at launch was more expensive, in real dollars, than the high end PS3 model at launch.  And yet the Atari 2600 was a successful console that made Atari a ton of money.  Atari was, in fact, the fastest growing company in US history during the 2600 years.  On the other hand, the PS3 caused Sony heavy losses throughout generation 7.  The market did not value consoles at the standard rate of inflation. That is why the Atari 2600 can sell well even though it technically cost more than the PS3 in real dollars.

Instead this is what we find.  The PS4 launched at a very good price of $399.99 in 2013.  If we compare that to the launch price of the Atari 2600 in 1977 we get a 1.9% rate of inflation.  The standard rate of inflation in the US over the same 36 year time period was actually 3.8%.  Console prices only have about half the rate of inflation as the average good or service.

So what does this mean for the PS5 and Scarlett?  The rate of inflation over the past 6 years has been low, 1.6% annually.  So only apply 0.8% instead.  The PS4 launched at $399.99 in 2013, so a console in 2020 should cost $422.93.  Basically the market is not yet ready for a price increase.  At best, a company might be able to get away with a $449.99 launch price.  But $500 really is too much.  A console that launches at $500 or more is going to have a hard road ahead of it.

Last edited by The_Liquid_Laser - on 18 August 2019