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The indie games industry is perfect ó and thatís the problem!

by Kenneth Tran on 09/20/17 11:22:00 am

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The following blog post, unless otherwise noted, was written by a member of Gamasutraís community.
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The principles of economics themselves no longer apply in blanket terms in a real world perfectly-competitive market — this is similar to a black hole in physics

The independent games industry is currently in a state of near perfection.

It’s perfect. It’s a perfectly competitive market economy.

While the AAA industry has long been an oligopoly with relatively few firms and high barriers to entry, it has been disrupted by digital distribution and self-publishing. Everyone knows this story: the rise of Google Play, the App Store, Unity Personal Edition, and Free2Play.

Compared to several years back, the mighty independent game developer could now create and compete with the behemoths of the gaming world on much more equal terms than ever before. This in turn spawned the rise of thousands of self sustaining small time game developers.

Wait.

Lets stop there and be serious for a moment. The independent games industry is currently in a state of quiet chaos. Indie games cost less than a hamburger on average, at their real world selling price. So much less in fact, that it’s more like they cost about as much as a packet of ketchup. You know the ones you get for free when you buy a hamburger? That’s about right.

Why is this so? Because the independent gaming industry is perfect. Perfectly competitive. It is the exact opposite of a monopoly. It is an industry that has many suppliers competing for many buyers. So many suppliers in fact, that if it weren’t for the fact that most gamers play more than one video game, we would likely have more suppliers than buyers if it came down to ratio.

Of course, this is a bit of an exaggeration because most suppliers pump out more than one video game.

So what’s the problem, then? I thought a perfectly competitive market is one that achieves the best possible outcome for the market as a whole. The problem is that it’s so close to perfect, its encountering hurdles to real perfection, that we rarely have ever seen because a perfectly competitive market is so rare a specimen that we truly (most of the time) have only studied it in theory.

First, so we know that consumers are better off when there are many competitors actively fighting over market pricing

Well usually this means that in an oligopoly you see high prices such as US$40 or US$60 retail games and such. A perfectly competitive market would see the exact opposite. Well who said the opposite of US$40 is, say, US$20 or US$10?

The opposite of US$40 is US$0 — zero. No, actually, the opposite of US$40 is negative US$40. So the supplier actually gives you the product at a loss not out of the goodness of their own heart, but because the market has appraised the average value of an independently produced video game as zero, not accounting for platform because platforms are a barrier to entry.

Second, the perfectly competitive market of indie games is actually in direct competition with AAA produced games, which is an oligopoly

You can think of this as though Honda, Toyota, and Ford are out on your street selling cars at car dealerships on one side. And on the other side, you have two- or three-man teams building boxcar racers or cars made from plastic and cardboard being sold out of their garages. You might buy one or two for fun.

Unless the AAA produced cars decided to make their own boxcar racers. Which they did. And now the perfectly competitive market is not so perfectly competitive. There is no law of economics that states that in a perfectly competitive market, a single large oligarch or handful of large firms cannot just hop on in at any given point in time. A market may be functioning at perfect competition, but because there is no barrier to entry at perfection, nothing stops a large firm from coming into the market.

Third, at the point of perfection a few, some, most, or maybe almost all economic fundamentals and laws change drastically in wild and unpredictable ways

What do I mean by that? I’m saying that the principles of economics themselves no longer apply in blanket terms in a real world perfectly-competitive market. This is similar to a black hole in physics.

For example, once you start approaching perfect competition, consumer expectations change in ridiculous ways (I say ‘approach’ because can one actually even achieve absolute perfect competition in reality? It is like infinity!)

You don’t expect to get a hamburger for free, but you do expect to get the packet of ketchup for free. Even if you don’t buy a hamburger, you expect to be able to ask for a free packet of ketchup. If a supplier started charging for their ketchup, the effects are instantly noticeable and there is little leniency from consumers in terms of outrage in the face of realisation of expectations upon actualisation (that’s a mouthful, like a hamburger with no ketchup).

Another example would be that labor economic principles barely hold true, arguably on both ends, for suppliers. Ask your average independent video game developer what their working conditions, motivations, and expectations, are. And you will get answers not even the most veteran of surveyors, HR professionals, and market researchers have ever imagined in their wildest dreams. That was not an exaggeration, but it was a hyperbole.

And the examples just go on and on

In the end, we don’t really know what perfection is. Because perfection is like a black hole. The fundamental laws that govern economies, industries, and free markets either barely apply, no longer apply, or have morphed themselves out of existence.

It is also interesting that, as you start to approach perfect competition, everything goes smoothly until you hit a certain point where prices bottom out down to zero and then even past zero. At this point, everything starts to go haywire like a spaceship screaming “ERROR: fluctuations in hyperspace”.

What is at the other end of the hyperspace tunnel to perfection? A perfectly competitive market?

Nobody truly knows, this author argues.

So maybe we should just create a spectrum of perfection. With nowhere near perfect, close to perfect, almost perfect, absolute perfection being a handful of good starting points to analyse and extrapolate upon.

Ah, the problems with perfection.


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