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.
duduspace11 "Well, since we are estimating costs, Pokemon Red/Blue did cost Nintendo about $50m to make back in 1996"
Mr Puggsly: "Hehe, I said good profit. You said big profit. Frankly, not losing money is what I meant by good. Don't get hung up on semantics"