Sony's Price War With MSFT

Added on by Arturo Gutierrez.

There is no winner. Ever. When a competitor decides to enter price war with you what value you created for your products is immediatly questioned. And the company that's left standing is usually left standing having lost a lot more than they could have gained. 

 

So what's useful about price wars if we all know no one really wins? Signaling could be a reason to enter into a price war. A competitor may be determined to send the market a signal that they are serious being a market leader. That same signal can also be interpreted as doing what's best for the consumer. Which isn't exactly the reason why they enter a price war, but it helps perceptually.

 

One that we see and most are familiar with are the price wars of telecom companies. I recall one in 1999 shortly after I purchased my first Nokia 5160 between Sprint and AT&T. I don't know who won. But it was obvious that the price reductions and adjustment of monthly service plans was causing confusion in the minds of consumers and investors. Why, you ask? Because price wars bring out the irrational in managers. They behave in a manner that is contradictory to the role of the firm, which is to create value for stakeholders and consumers.  And with changing service plans, reduction in prices, it's easy to question where value is being created and where it's depleting. 

 

Sony and Microsoft both make great products, but if this war takes off, one of these might dissapear. Development costs for new games are HUGE (20 million) and having a price war with a commodity like salt or mobile service is clearly different as those are neither platforms or have much room for differentiation. Ultimately, less choice in a market with limited options in game consul/entertainment to begin with, is not be good for consumers.  

 

- arturo gutierrez