Rivalry Among Existing Competitors: HIGH
The Sony Playstation faces mostly two rather equally balanced competitors – Microsoft’s XBOX and Nintendo’s Wii. The R&D costs are very high here due to the extensive amount of technological know-how and brand identity needed to develop these products. The switching costs are high since the games are not portable from one platform to another. There is a constant pressure to innovate and churn our faster and more powerful consoles every few years or else the competition will surpass/kill you. The profit margins on the actual game consoles sold are quite low and sometimes even non-existent. This is because the business model of these companies is such that they rely largely on the royalties earned on the actual games (discs) sold. In other words, this is a two-sided market – on one hand the 3 companies in this industry manufacture gaming consoles and there is a separate group of game development companies which make the games that run on their consoles). All these attributes indicate that the existing industry rivalry is quite high.
Threat of New Entrants: LOW
In the video game industry the barriers to entry are quite high. Because of the high...