Introduction

Xbox One is one of the greatest products expected in the market from the ever innovative Microsoft Company.  The product is first expected to be released on 22^nd Nov 2013 in North America. There are high hopes that the eighth generation of video gamers will have the best option in the Xbox 1 release. According to company sources, the product will have great emphasis on internet based features that will enable streaming and recording of game play. This will be very advantageous to the eighth generation gamers. Xbox one is expected to deliver what other consoles such as Wii U and Nintendo have failed to deliver in the gaming industry.

Elasticity

Even as the gaming world eagerly waits for this new development, it is essential that the elasticity of the product be pre-determined(Mankiw and Taylor, 2011). This is very vital in ensuring that the pricing strategy for the company remains competitive with other products in the market. Elasticity refers to expected change in demand as a result of change in price of the product or due to change in consumers’ income.

Price elasticity

It is always essential to understand the response in demand of a product as a result of change in its price. This is what is referred to as price elasticity of demand. Elasticity is calculated as  if the result is greater than 1 it is clear that the demand for the product is greatly affected by a change in price. The elasticity in price is greatly influenced by presence of close substitutes of the product in question. For instance, Xbox One will face stiff competition from the Sony’s PS4 and therefore it would be very essential for Microsoft to set their prices right (Mankiw and Taylor, 2011).

Income elasticity

This refers to the change in demand for a product resultingfrom a change in the consumers’ level of income. The gaming industry enjoys a variety of consoles ranging from Microsoft’s Xbox 360to Sony’s PS4 which are of different prices. Even though the consoles are expected to be more effective than the others, it would be suicidal for the company to ignore the income factor in price determination. Some low income gamers may opt to use the less advanced technology in Xbox 360 or from the competitors PS4. It is therefore essential for the company to strategize on price regarding the income of prospective consumers.

Cross elasticity

This is concerned with the corresponding change in demand as a result of corresponding change in its substitutes or complimentary goods. For instance, an increase in price of Xbox one will trigger an increase in demand for the PS4 which is a substitute. In such circumstances, positive cross price elasticity of demand is experienced. If the substitutability o9f a product is limited, then the price elasticity becomes weak (Mankiw and Taylor, 2011). While determining the price for Xbox one, it will be very important to first understand the pricing strategy by the competitors.

Competition

The gaming industry has been very competitive for a long time now. The main competitors in this sector are Sony and Microsoft. These two companies have strived to ensure that the gaming population gets the desired results. The two main competitors will be Xbox one and the Sony’s PS4 which are the main gaming tools with highly advanced consoles. Currently, there is a difference of $ 100 between the two consoles and thus Microsoft needs to up the game in order to remain competitive (Mankiw and Taylor, 2011).

The use of highly advanced technology such as the integration of camera that enables streaming and recording of high quality signals will remain vital to the company’s competitiveness. It is also vital for the company to carry out intensive promotional and advertising campaign to sensitize consumers on the distinct features such as Kinect and special control which can only be found on Xbox one.

(Works cited)

Mankiw, N. Gregory, and Mark P. Taylor. Microeconomics. 2nd ed. Andover: South-Western, 2011. Print.

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