Stephen Kline’s Digital Play talks about the progression of video games through the interaction of technology, culture and marketing. As an economics major, sometimes I find myself comparing things I read to my major. This definitely happened during the subsection “Meltdown”. In 1982 home sales of video games were about three billion dollars, and the arcade game business was about eight billion dollars. Video game sales were extremely successful in the 1980s, but what happened? Why did this industry become reduced to a “little more than an economic crater”? Well, a basic microeconomic supply and demand graph can solve that question. The video game market was a relatively new in the 80s. As demand rose for these markets, the suppliers could not predict the large growth rate. With the possibility of making positive economic profits, many different companies entered the video game market. As stated in the text, most of these new companies had nothing innovative to offer and game revenues still fell, pushing the least effective companies out of business. It took time but the supply eventually reached the equilibrium for video games. Today there are many game companies that are effective. These are the companies that offer new and innovative games that consumers want to play with technology that does not fail. With such a fast growing market, one cannot expect the supply to match the demand at first, but the market will eventually compensate for the increase in demand to reach an equilibrium with supply.
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I’m reluctant to rely entirely on a basic supply and demand graph to explain the videogame crash in the early 80s. Certainly there was an abundance of games (and an overabundance of not very good games), but there were many other factors at work. Some of the largest companies made bad investments. Fluctuating manufacturing costs played a role. And perhaps the biggest disruptor of the videogame market was the emergence of home computers. So it wasn’t just that there was too little demand; in fact, there was a great demand, but much of it shifted to the much more versatile early PCs.