Question:
Hello, there's recently been a lot of drama regarding Nintendo's decision to raise the prices of their games from $60 to $70 and $80. Whenever I see discourse surrounding this issue, I usually see two arguments. People who are okay with this choice say that the price increase was necessary because inflation has raised the price of goods. On the other hand, people who disapprove of this choice say that the price increase is still too much, citing things like stagnant wages and a larger increase in the price of other things--such as consumer goods and housing--which negates increased wages.I wanted to know how valid these claims are, so I analyzed how wages and the price of consumer goods has changed over the past few decades.
After comparing data from 2006--the release date of the Wii--and data from 2023, it actually seems like the price increase is reasonable. In fact, the price of games has actually increased less when compared to the price of consumer goods and wages. This seems to suggest that Nintendo's price increase is completely reasonable...
Here's the google sheet where I recorded my data: https://docs.google.com/spreadsheets/d/1BnEt5pP8r6EfxPq32I0qxxMGlyEPFp0jkaHJ0bhjMkI/edit?usp=sharing
Am I missing something here? I'm just a high schooler, and I've never taken anything that even resembles an economics class so I have no idea what I'm doing. Economics is confusing! Thank you in advance!
Answer:
Thank you for your question. This is a classic example of how economic reasoning and distributional impacts come into play in pricing decisions. You rightly pointed out the arguments in favor and against the price rise, and both have some merit.
Let me begin by saying that you have done an excellent job in doing the primary analysis. The first crucial economic aspect is to compare the real values and not the nominal values. Adjusting for inflation using the Inflation Calculator, you rightly addressed that concern. Comparing the inflation-adjusted wages and prices over time gives a fairly good idea of how things have changed. A comparison of average and median wages and prices between 2006 and 2023 tells us that, on average, the price rise of the Nintendo Games seems reasonable. However, it ignores the deeper economic concepts, such as the distribution impact of a price rise.
Over time, the cost of providing services increases due to inflation. For example, Nintendo Games have many costs, such as the cost of developing a game, the wage of its developers, distribution costs for physical games, and server infrastructure costs for online games, etc., which also go up with time. Therefore, keeping the price of a game constant would not generate the same amount of real revenue and profit for them. From this point of view, raising prices helps keep up with the rising operational costs and maintain profit margins. This is what the economists call ‘cost-push inflation’ - prices go up because costs go up.
However, the other argument that a price increase is burdensome despite inflation has the following rationale: While inflation has affected prices, wages for many people have not kept pace after adjusting for inflation. Everyone’s wages have not gone up in the same way. People with higher wages have had more hikes than people with lower incomes. This taps into income inequality and the uneven burden of inflation across income groups. Also, people from the lower strata of income distribution are more sensitive (elastic) to price changes of non-essential goods like Nintendo games (luxury goods) and therefore may find it unaffordable, even if the price change multiplier is slightly lower.
The challenge is balancing financial sustainability for the provider with affordability and equity for consumers.
