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Thursday, July 12, 2007

Anti-competitive behavior

Posted by: Hammer / 8:37 AM

This sucks:

Microsoft plans to cut the price of its Xbox 360 game console to compete with Nintendo's top-selling Wii.

The company needs to lower the price of the Xbox, which retails from $299 to $479, to increase sales and lure customers who are not interested in traditional combat and racing video games, said Shane Kim, vice president of Microsoft Game Studios.


In fiscal 2006, the games unit lost $1.26 billion on sales of $4.26 billion. David Hufford, a director of Xbox product management, said last month a price cut was needed to persuade parents to buy the machine for their children.

As it stands, Microsoft loses $125 each time it sells a 360. Microsoft is also taking a $100 per unit sold charge because so many 360s have been defective. Now Microsoft wants to cut its prices even more, so it can lose more money.

Meanwhile, Nintendo sells the Wii with a $90 profit. Nintendo wanted to sell the Wii for $199, but retailers wanted the higher price.

But why does this suck? Because consumers should want the best gaming system to win, not the best funded gaming system. When we allow a company like Microsoft to sell a product at an extreme loss, we allow the market to be corrupted. It feels great now -- you can buy what you like, and if you buy a 360 or a PS3, someone is paying you $200-$300 for the favor.

I worry about the future. The Wii is succeeding because it is different. If we allow companies like Microsoft to destroy the competition by tapping the cash flow from their operating system monopoly, we invite future monopolies. The entertainment world is better when we have choices. Markets work better when we have choices.

Allowing any company to pervert a market to this extent invites a monopolized market. Who wants to be stuck with no choice in 2013 because Microsoft bought the market in 2007?

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I'm sort of with you on this, but I'm also hearing a little wii-fanboy coming through too.

I'm pretty optomistic. Good design seems to be winning lately.


By Anonymous Anonymous, at 4:16 PM  

There's no doubt I have a personal stake in this. I'm a Ninten-erd.

It's definitely a difficult slope to navigate. I think it's okay to sell a product at a loss to gain market share, but it's not okay to sell a product at a loss to destroy other competitors. A Wii retails for $249. When Microsoft loses $249 or more each time it sells a 360, I think we've gone past competition and entered the Thunderdome.

By Blogger Hammer, at 8:49 AM  

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