How the Success of the Nintendo Switch Could Change the Console Industry

Prior to the Switch’s launch last Friday, analysts at investment banks across the country forecasted weak sales numbers and an overall flop for the Japanese entertainment company, citing a high starting price and lack of strong launch titles.  Nintendo, which is still reeling from the unsuccessful launch of the Wii U, was banking on the Switch not only to succeed, but also to revitalize a business model forged on innovation.  If you look at the history of the gaming industry, you can see that upon the release of a highly successful Nintendo product, the rest of the industry subsequently attempts to tailor their products/technologies to match that of Nintendo.  There is no better example of this than the release of the Wii in 2006, which prompted Sony and Microsoft (both of whom were on the verge of releasing their newest generation consoles) to attempt to incorporate similar accelerometer-based technology.  As a result gamers received the Xbox Kinect and Playstation Move packages.

Fast forward to today and we see a drastically different story than that painted by analysts less than a week ago.  Nintendo claims that the Switch is claimed has outsold the 2006 Wii launch, and company stock prices reflect that with a recent jump of 4.1%.  The flagship title Zelda: Breath of the Wild has just barely came in at no. 2 in the UK games charts behind Playstation exclusive Horizon: Zero Dawn.  But what does this mean for the future of the big three console companies?  The Switch essentially capitalizes on consumers’ obsession with mobile gaming, allowing them to take games they play on the TV at home with them on the go (and done in a much more effective way than Sony’s mid-2000s PSP).  Given the Switch’s relative success in comparison to the Wii, can we expect to see a restructuring of the approaches that Microsoft and Sony take to future platforms?  Will the entire industry see a shift to provide consumers with a high-performance alternative to smartphone mobile gaming?  We can only wait and see.

References:

Nintendo shares jump 4.1% after Switch console success – Independent.co.uk

Analyst Predicts The Nintendo Switch Will Have a Sluggish Start with $5M in Sales in 2017 – Forbes

Nintendo says the Switch outsold the Wii at launch – Polygon

The Median Voter Theorem

The median voter theorem as developed by Anthony Downs in his 1957 book, “An Economic Theory of Democracy,” is an attempt to explain why politicians on both ends of the spectrum tend to gravitate towards the philosophical center.  Downs, as well as economist Duncan Black, who proposed the theory in 1948, argue that politicians take political positions are far as possible near the center in order to appeal to as many potential voters as possible.  Under certain constraints/assumptions, Black says, the median voter “wins,” and the outcome ends up as a Nash equilibrium.  These assumptions are as follows:

  1. Voter preferences are single-peaked:  All voters have a single point along a policy position preference curve at which they would receive the highest utility.  The farther a candidate’s policy positions are from this point, the more dissatisfied the voter will be.  
  2. Voter preferences are one-dimensional: Similar in composition to the Hotelling model, the median voter theorem is only able to find an equilibrium when voter preferences are being measured in one-dimension.
  3. There are 2 candidates or parties competing for voters: Each voter must choose between two different policy positions.  Voters will vote for whichever candidate is closer to their highest preference point from the first assumption. 

The polarizing nature of this most recent presidential election however has many experts doubting how empirically applicable the median voter theorem truly is.  The 2016 election was awash with fringe candidates, politicians such as Trump, Bernie, and Jill Stein represented voters with preferences much farther away from the median than had been seen in a long while.  Many argue that this is a result of party stances drifting farther to the right/left, however the positions of Bernie/Trump were substantially outside those even of their own parties.  Why?  Thomas Romer and Howard Rosenthal point out that cartels of “agenda-setters” are able to exploit the differences between median voter’s policy preferences and the actual status quo in order to articulate policies that come as close as possible to their (the agenda setters’) preferences as possible.  In US presidential politics, agenda setters are party activists and special interest groups, to whom candidates need to win favor in order to receive campaign funding.  For the Republican side Daniel Drezner of the Washington Post hypothesizes that fierce competition among GOP candidates for party favor caused many of them to shift “ever rightward” on foreign policy and many other issues.  He goes on to say that once one party begins to shift to one side, the other party is able to shift more and more to their side while still appearing to be relatively moderate.  This would explain much of the early success of Bernie Sanders and some of the more liberal stances taken by Clinton in the later stages of the election.

All-in-all, the median voter theorem does a satisfactory job at explaining why candidates choose the positions that they do, and how voters choose who to vote for.  However, the theorem will soon stand its strongest test as the Trump presidency rumbles on and partisan politics drift farther and farther from the median.

Sources:

“The End of the Median Voter in Presidential Politics” – Washington Post

“The Median Voter Theorem and its Applications” – Joshua Palette

“Why Politics is Stuck in the Middle” – NYTimes