Microeconomic Factors Which Affects the Prices of Play Stations - Case Study Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Title : Play station, a product of Sony Company Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2010 Play station, a product of Sony Company Introduction Sony Company is the biggest worldwide company which deals with the electronics, entertainment (Video and Audio), games, and financial services. However, it is the leading producer and distributer of the electronics. With the advancing technology, it has produced Video game consoles play station developed through its computer entertainment and regularly modifies it to fit with the advancement of the technology. The essay will analyze the decisions of the company and its workers regarding the price of play stations focusing on the demand and supply. It will also look into the general views of the whole industry, nation, or world which contributes to the prices or the flow of the product. This will include information on the demand and supply of the product (Sony electronics, 2007). Microeconomic factors which affects the prices of play stations Microeconomic factors are those that Sony Company and its workers consider when setting up the prices of the products, these include government taxes and other regulations. The wars of the prices of commodities is too common in today’s market and especially in the video game industry as most of the companies are engaging in this type of business to meet the demands of most of the consumers in the recent market. This makes the demand high although the supply is very low may be due to the quality of the product or the high prices for the public to afford. Although the prices are considered to be the key determinant of the choice of buying a product Sony records the most output of play stations compared to the other companies. Their prices are set in a way that they favor the capabilities of most of the consumers and favor the status of the company. First they consider the fixed costs like that of the renting the building, cost of the raw materials and machineries, salaries of the workers and other expenses like insurance. These costs remain irrespective of the conditions of the outputs or the supply of the products hence the prices of the commodity cannot go below the fixed costs. (Dr. Duffy, 2008). The company has a good relationship with its suppliers thus it gets the best quality and reliable raw materials. It doesn’t suffer from their shortages or unreasonable increase in the prices. This because of its stability and performance in the global market thus most of the suppliers find it to be more reliable than the other companies. Due t the stability of some of these internal factors, the prices of the products are not interfered with. The availability of many and different products and their high supply means that the fixed coats which are the major determinants of the prices of commodities is shared resulting to the fairness of the price of a single products compares to those of the other related companies. The company also has more interests from the sale of its different products thus some of the changes in the fixed costs like the increase in the salaries of the workers cannot affect the prices of the output (Ivory research writers, 2005). Microeconomic factors which affects the output of play stations Since the launching of the first play station in 1994, the company has progressed well as far as sales are concerned. The product has been modified from the original form to play station 2 and 3; however, the consumers adapt to the changes and still increase their consumption. Within a span of less than an year, from September 30, 2009 to March 31st 2010; it sold over 35.7 million worldwide and has over 60 million users. The modification and release of the other forms of play stations is so as to meet the recent technological levels and the interests of the consumers (Ivory research writers, 2005). The company as itself has worked so hard to achieve and maintain this. It has a very qualified market research team which is able to study the interests of the customers or the competition from the other marketers hence demands changes of the outlook or the operations of the product. For example, play station 2 is slimmer than the original and the latest type allows the control of the motions through the use of wireless devices Blu-ray Disc and remote control. These modification increases its demand and output (Bade & Parkin, 2009). The company has well established market intermediaries who enable its distribution of the products. For example, there are many wholesalers who distribute play stations to retailers who reach the consumers at all levels. The customers range from consumer market to government market; this helps to increase the supply of the commodity hence the output is high. Macroeconomic factors which affects the prices and output of play stations These are the external forces which affect the prices and output of products; these may include technological, demographic, economic, political, natural, and cultural. The technology environment is changing so fast and as a technology dependent company; Sony keeps a close look on the changes in the technology so as to keep ahead of the competitors and produce commodities which fit the interests of the consumers. According to Elsevier/Geo Abstracts, (2004), the demographic aspect entails the human population in terms of age, gender, race and so on. The study of the population enables Sony Company to know the interests of the targeted group and use it as guide when producing the play station and setting the prices. Under economic environment, the company looks at the factors which affect the purchasing and spending powers of the consumers. These factors guide the company to set the prices of the community before launching it. For example, for the environments well established entities like North America; the prices of play stations are higher than those in the developing countries. The price of products is also determined by the natural resources for example, the availability of raw materials. When there is a shortage of raw materials the price of final product is higher or the output is low compared to when the materials are in plenty. This is also the trend with the increase in the government interventions like taxation rates and other costs (The Economist Newspaper, 2002). Demand and supply characteristics of play stations As a multinational company, Sony is well known both locally and internationally thus the demand of its products is high from different corners of the world. Sony’s play station especially the most recent console is fits in the advancing technology meaning that everybody in today’s society is in need of accessing it. Although the demands of these commodities are too high, the Company is working too hard to meet this demand but still finds it hard. Thus although the output of the commodity is high as per the records of the company, the market analysis shows that when its demand is high the, supply is low (Elsevier/Geo Abstracts, 2004). Interpreting values of price elasticity coefficients Value Descriptive Terms Ed = 0 Perfectly inelastic demand - 1 < Ed < 0 Inelastic or relatively inelastic demand Ed = - 1 Unit elastic, unit elasticity, unitary elasticity - ∞ < Ed < - Elastic or relatively elastic demand Ed = - ∞ Perfectly elastic demand Price elasticity of demand This measure is used in economics to show the responsiveness of the prices of goods to the quantity demanded. It provides the percentage transformation of the demand of a commodity compared to the change in cost. The demand of a good is elastic when the price elasticity of demand is more than one; Changes in the prices of goods have major effects on the quality demanded while when PED is less than one, the demand is inelastic and in these, changes in the prices of the commodities have minor effects in the quantity demanded. Cross elasticity and income elasticity factors Income measures how changes in the income of the people affect the demand of a product. This entails the ratio of the fraction in demand to the change in income. For example, if there is 5% increase in income, the demand of a product increases by 10% thus the cross elasticity is 10%/5%=2. An increase in the income leads to decrease in demand as many opt for more luxurious commodities; this is negative income elasticity. Positive income elasticity is whereby an rise in income leads to an increase in demand and zero income elasticity occurs when the increase in income does not affect the demand. This mostly happens with the sticky goods or those whose demand does not depend with the time of the year (Sinha & Labi, 2007). Inferior good's demand falls as consumer income increases Cross elasticity shows how the demand of a product is affected by the changes in the product of another. For example the demand of a play station may increase if the prices of the other related electronics increases. This is because most of the people will opt for an alternative of the expensive commodity. All these changes may either be classified as either positive, negative or zero elasticity based on the impacts of the concern products. The demand and prices of two commodities which complements results to a negative cross elasticity; increase in the price of one commodity reduces the demand of the other, while those which substitute each other have a positive cross elasticity, increase of the price of a commodity increases the demand of the other. For the independent goods, zero cross elasticity is realized: when the price of a commodity increases the demand of the other remains constant (Ivory research writers, 2005). Future of the macroeconomic environment There are many factors which are expected to affect the macroeconomic environment. They range from the cultural forces to the technological aspect. With globalization people are changing their native styles of doing things and embracing values whose standards are internationally based. For example, moist of them have a positive perception towards the modern play stations hence increasing its demand. This is enforced by the technological forces which demands that everyone advance with it so as to fit in its error. The economic crisis means that the government is expected to impose more tax rates so as to get more revenue. This is expected to affect the marketing of produces. Conclusion Sony Company is one of the biggest multinational organizations and produces variety of commodities. This enhances its stability because if one commodity fails the other continues and if marketing in a certain country performs poorly the others will cover it. It also has a good research bodies which ensures that the products fit the most recent needs in the market. For example, it has made modifications on its original play stations to match with the advanced technology. Bibliography Sinha, C., K. & Labi S., 2007, Transportation decision making: principles of project evaluation and programming, John Wiley and Sons, New York. Sony electronics, 2007, Sony’s History -- Through The Eyes of the Company’s Leaders. Retrieved July 18, 2010 from < http://news.sel.sony.com/en/corporate_information/sony_brand> Duffy, T., 2008, Microeconomics. Retrieved 18, June 2010. The Economist, 2002, Economist, (363) 8271-8278, The Economist Newspaper Ltd., Michigan. Bade, R. & Parkin, M., 2009, Essential foundations of economics, Pearson Education: Boston. Elsevier/Geo Abstracts, 2004, Geographical abstracts: Human geography, (16) 5-7, Elsevier/Geo Abstracts, Michigan. Ivory research writers, 2005, Marketing plan for playstation 2 (Sony). Retrieved July 18 2010 from, . Read More