Economics live: in video games
Economics is not just an abstract subject, it permeates practically every aspect of our daily lives, including the video games we play in our leisure time. Today, I'd like to dive into how a few economics concepts are reflected in my favorite games and explain them through examples.
Price Elasticity of Demand: The price elasticity of demand is the degree to which the quantity demanded changes accordingly when the price of a good changes. This concept is evident in the games Valorant and Apex, where in-game items often require a lot of money to be able to buy. I noticed that even when game studios Riot and Respawn released new sets and skins and raised the prices of in-game skins, players' enthusiasm to buy them was not affected too much, and they could still benefit in a very consistent way. This suggests that for these in-game items, player demand is relatively insensitive to price changes, they have low price elasticity. This may be due to the fact that these games have high player loyalty and brand value, that some in-game sets and skins may be unique or scarce, and that for some players owning a specific in-game item may be a social status symbol, which are reasons why players are willing to pay for their favorite in-game items even in the face of price increases.
Price elasticity: Trans-price elasticity refers to how a change in the price of one good affects the demand for another good. Take the game console market as an example, ps5 and ps4 are obvious substitutes, when sony released the new generation of ps5, people might expect the demand for ps4 to drop significantly as consumers might switch to the newer and more powerful ps5. however, the actual situation is that the sales of ps4 has not dropped drastically, and it even fought with ps5 to have a back and forth. Nine months after the launch of the new console, PS5 sales totaled 10,479,928 units, while PS4 sales totaled 9,860,208 units. This suggests that consumers in the gaming console market are not strong substitutes for the old and the new. the ps5 may have faced supply chain issues and inventory constraints during the initial release period, resulting in many consumers not being able to purchase the new console and still choosing to purchase the ps4. the ps5, as a new generation console, tends to be priced at a higher level than the ps4. for consumers with limited budgets, the ps4 may have been a more affordable option. There may be different segments of the gaming console market, where one segment of consumers prefers the latest technology, while another segment of consumers may value for money or be less sensitive to new technology. This market segmentation may lead to the co-existence of old and new consoles rather than a simple substitution relationship.
Income elasticity: Income elasticity refers to the effect of changes in consumers' income on their purchasing power. In Valorant, I observed that players with higher incomes were more likely to buy in-game skins, whereas players with less means were more cautious and often waited for discounted "night market" events to make purchases. This pattern of behavior suggests that the income elasticity of in-game items may be positive, as players' incomes increase, their in-game expenditures will also increase. As an example, a friend of mine has never had much money to live on, making it difficult to save up for skins, but when he gets some parental rewards and more money, he starts buying the skins he wants. This shows that in-game spending correlates to some extent with a player's income level. Of course, daily life are not enough, and mental satisfaction like games must not be an inferior good or a necessity. When players' incomes increase, their in-game expenditures will increase accordingly, reflecting the income elasticity of in-game items.
We find that in-game items are relatively insensitive to price changes, indicating low price elasticity; there is low cross-price elasticity between old and new consoles, they are not strong substitutes; and in-game consumption increases with players' income, indicating positive income elasticity. These observations reflect some simple characteristics of consumer behavior and demand in the gaming market.
Yikun Li
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