[abrenzel]

This article is sensationalism dressed up as economic reasoning. In the opening paragraph, the author fails to make the distinction between profits trending toward zero versus prices trending toward zero in a free market. This undermines his argument even without the very real and substantial caveats he waves away later in the piece.

Second, while the marginal cost to sell one copy of a game is effectively zero in electronic marketplaces, the gross cost of making a game is never zero, not even for indie developers, because if nothing else it costs them their time. What we should then expect to see is a situation where, assuming a game is successful, a game sells at some non-zero price the market will bear until it earns its costs back, with steep discounts following. Of course, it is more than possible the game will simply lose money.

We should expect this to be true even in a world where games are sold purely in electronic form and those markets are flooded with free content (which is to say, developers willing to sell their games at a loss). Come to think of it, that's pretty much precisely what we observe in the games industry today. Where's the beef?

[JDShu]

Gross cost is basically irrelevant when you are talking about pricing in a perfect competition. The point is that producers cannot set their price because if they set it any higher, somebody else will undercut them.

I think the correct mainstream economic interpretation is that games are highly differentiated, meaning that no game can completely undercut another game because they are never the same. This means that the perfect competition model and argument do not apply and thus MC != MR in the game industry.