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Rational gamers choose subsidized hardware, all else equal [update 2]

Vladimir Cole

The reaction to our post about the Wii being profitable at launch puzzles.

If companies like Sony and Microsoft want to subsidize their consoles to the the point that they're losing money on every unit sold, shouldn't we (as rational consumers) want to take advantage of this built-in subsidy? All else equal, shouldn't a rational consumer choose the console with the largest built-in subsidy?

Sony and Microsoft are giving us free hardware when they sell each console at a loss. A gamer who wants the most computing power for his buck will naturally prefer the subsidized console, ceteris paribus. Whether this is ultimately healthy for Microsoft and Sony is another matter entirely. The ultimate profitability of a game manufacturer is no concern of ours, as gamers.

One final point: if a company doesn't believe in its product enough to take a small loss at launch, what does this risk averseness say about executive confidence in the long-run prospects of the product? A larger, up-front investment indicates stronger confidence that a product will eventually be successful enough to pay for initial investment.

Most comments below are ignoring the ceteris paribus stipulation of the argument. For this argument to work, one must assume that all else is equal. To put it another way, would you buy a Wii at $600 or at $100? You'd buy it at $100, because the $600 model is exactly the same. Most rebuttals are bringing in objections that violate the core stipulation.

[Update 1: Added last paragraph.]

[Update 2: This position has been further clarified in this followup post.]

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