Gaming —

Are the PS4 and Xbox One really that expensive, historically?

Also, how soon and how much can we expect the new consoles to drop in price?

Are the PS4 and Xbox One really that expensive, historically?
Aurich Lawson / Thinkstock

At E3 earlier this month, Microsoft and Sony both coughed up a lot of long-awaited information about the new consoles they want us to buy this Christmas. Sony was roundly declared the winner of this pre-release skirmish, making all the right noises about intellectual property, panopticonnectivity, and perhaps most importantly, price.

Game consoles are not inexpensive, and the PS4 undercuts the Xbox One by a significant $100. It also undercuts the $599, top-end release price of the PlayStation 3 by $200, showing a bit more price sensitivity this time around. Of course, those were 2006 dollars, which makes Sony's real price reduction for the PS4 even steeper.

This got me thinking about the effects of inflation on console prices in general. Is the Xbox One's $499 price really an outlier, or are we just disregarding how much less purchasing power a dollar has these days? How far back do we have to go before gaming machines were, generally, more expensive in real terms than they are now?

Finding myself in an analytic mood, I decided to try to come up with some answers. Starting with the Atari 2600, I've included the major players from each successive generation of gaming consoles (a few extremely niche home systems are left out for lack of market impact). For consoles that launched in multiple configurations (Xbox 360, PS3, etc) I've used the price of the top configuration at launch, and tried to stick with comparable configurations as time (and bundles) go on.

Price drop data was collected from a variety of contemporaneous and historical sources, from news stories to archived department store catalogs. In cases where a price dropped twice in a single year, the lowest sales price for that year was used. If you are the world's leading expert in Sega CD price fluctuations and have spotted a glaring error in the numbers please let me know. The inflation-adjusted prices were calculated using the Bureau of Labor Statistics calculator.

The green bars show the original launch price, and the orange bars are the launch price adjusted to 2013 dollars.
Enlarge / The green bars show the original launch price, and the orange bars are the launch price adjusted to 2013 dollars.
Eric Bangeman

Lets take a look at those inflation-adjusted launch prices first. Here it becomes clear that Xbox One is at the high-end of real-money asking prices for systems on day one. While the system's $499 launch price is technically almost precisely at the inflation-adjusted average ($498.63, by our count), that average is skewed significantly by the insanely expensive 3DO, Neo Geo and CD-i, as well as high-priced systems from before the great video game crash of 1983. The Xbox One is above the inflation-adjusted price for all but two systems released since 1995, and above the overall inflation-adjusted median launch price of $421.75.

The PS4, on the other hand, shows what a difference $100 makes as far as historical comparisons. Sony's new system is the cheapest one the company has ever launched when measured in real dollar value, and it hovers right around the median inflation-adjusted price for consoles historically. Sure, the PS4's price doesn't compare well with Nintendo's systems, which are consistently priced very low at launch (especially once Sony brings the Playstation to the party). Still, it's hard to say that the PS4 is over-priced, at least compared to historical norms.

Of course, there's always the possibility that Microsoft could pull an Nvidia (or pull a Nintendo 64, if you prefer) and drop the Xbox One's price even before it hits shelves in November. Last week saw Redmond pivot toward Sony and away from their green-tinted E3 promises on quite a few points already. Announcing a price cut before the system even goes on sale, on the other hand, might not send the most confident message out to the wider public.

This graph shows the relative cost of each console over its lifespan, with years on the horizontal axis and 2013 dollars on the vertical axis.
Enlarge / This graph shows the relative cost of each console over its lifespan, with years on the horizontal axis and 2013 dollars on the vertical axis.
Eric Bangeman

Launch prices aren't the end of the story, though. A console that looks horribly expensive on launch day won't stay that way forever, though we'll probably have to wait quite some time before being able to pick up a PS4 for $99.99. Looking at inflation-adjusted prices over time shows that higher priced systems tend to drop more quickly and more sharply than those launched at lower prices, which slowly taper down over the years. Waiting a few years also often means getting a better spec. For example, in 2008 the 60GB Xbox 360 replaced the 20GB, and the 2010 price drop was for the Elite, which had replaced previous top-spec 360s. The PS3 also went through similar spec changes over time.

This graph shows the decreasing (inflation-adjusted) price of each console as a percentage of its (inflation-adjusted) launch price.
Enlarge / This graph shows the decreasing (inflation-adjusted) price of each console as a percentage of its (inflation-adjusted) launch price.
Eric Bangeman

Aligning the price drops to each console's launch year splits the market into two groups of almost identical size. On one side are the consoles that dropped anywhere from 20 to 50 percent in price within just one calendar year of their launch. These tend to be systems that performed particularly badly out of the gate that used steep price reductions as a last-ditch effort at relevance, from the Atari 7800 and 3DO to the 32X and Dreamcast. While some relatively successful systems saw steep price drops in their first year, including the original PlayStation, most systems that were in it for the long haul don't drop to below 80 percent of their original price (in real money terms) until two or three years after launch (or sometimes more) tanking in the market.

After year one, though, the average console tends to dip to around 50 or 60 percent of its real-value launch price by its third year on the market, a trend that's been relatively consistent as time goes on (the Nintendo Wii is the most striking counterexample, dropping just over 25 percent in real price after four years on the market). Whether this trend continues depends largely on how competitive the market is this time around; note that the NES stayed at its $100 nominal price from 1988 through 1992, without much real damage to its dominant position.

All told, looking at economic history on a fair dollar-to-dollar basis shows that neither Sony nor Microsoft are launching well outside of historic norms, and that any sticker shock will probably be mitigated significantly by price drops like within two or three years.

Channel Ars Technica