In the past, handheld gaming systems had met consumers’ expectations very well. The vast majority of the handheld gaming industry was divided between Nintendo (Gameboy, DS) and Sony (PSP) products. Consumers expected a handheld gaming device to be small and portable, run on batteries, and play fairly complex games. The handhelds fulfilled these requirements very well, and enjoyed high demand because of it. The introduction of smartphones (iPhone, Android) has changed the consumer’s expectations of portable gaming. In the past, portable games were played on devices with dedicated buttons and controls and featured intricate, challenging gameplay. Now, consumers expect portable games to be played on their phones. What used to be its own industry, has been devalued and demoted to just another feature on a smartphone. If the handheld industry is in the horizontal portion of the aggregate supply curve, like Figure 4.10 A, increased demand will increase output without increasing the price. During the holiday shopping season demand for handheld gaming systems increases dramatically as they make popular gifts. Manufacturers increase their output to adjust for the greater demand, usually by increasing the hours the plant is running. By using more of their unemployed resources, output increases and prices are the same. If the handheld gaming industry is in the vertical portion of the aggregate supply curve, like Figure 4.10 B, and demand increases, price levels will increase without an increase in output. If demand for handheld games is so high that even at maximum output (fully employing all resources) manufacturers cannot keep supply up, they can raise the price in response. Since output has already been maximized and potential sales are not being made due to lack of supply, the only thing to do to not “leave money on the table” (miss out on potential profits) is to increase the price in response to increased demand,...
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