As the Chief Executive Officer (CEO), it is your task to make decisions one year at a time. As you do so, note how key data are changing, and take note of how your pricing, changes made to royalties, and new game subsidies change your profits and your market share. You may need to go through at least one practice run of the simulation in order to become familiar with it.
At the start of the simulation, your market share is 50%. The price of your video game console is $250. Note that your competitor’s market share is 50%, but your competitor’s console price is $261.00 (hint: you are vastly underpriced to begin the simulation).
One way of becoming familiar with the simulation is to change only the value, leaving the others constant. This will isolate the impact of one variable and will give you a sense of how the change in a single variable impacts revenue, market share, etc. (use the Dashboard and the financial statements to determine this).
For example, if you leave all variables unchanged in Year 1 (price = $240; Game titles to subsidize = 3, and Royalties = 15%), your market share becomes 69% at the end of Year 1 (and my net profit is $48.0M).
In contrast, if you reduce the console price to $230, your market share will become 71% at the end of Year 1 (net profit will be $33.6M). Importantly, if you increase the console price to $330, your market share at the end of Year 1 is 58%; however, your net profit is $140.8M.
As the CEO, your task is to find the best combination of changes in the three variables that both increase your market share and earn a maximum net profit. Remember that the changes are relative; there are no right or wrong answers.
Be sure to take note of how the statements may be used to “control” your strategy. Remember that you need to cover your costs while simultaneously turning a profit and increasing your market share.
Go to https://forio.com/simulate/mit/video-game/simulation/Click on “Play as an individual.”Enter your first name as the “Screen ID,” then click “Login.”
In this web-based simulation, run the simulation a minimum of three times, noting the changes made each year, as well as your final results. Each year, you have three decisions to make:
Determine the selling price of the video game console.Determine the number of video games that your company will subsidize to enhance the development of new video games (and that can be played on your company’s video game console); be sure to note that the subsidy of each new game costs you $16.2M each year; andDetermine the royalty percentage you will require game makers to pay you (the higher the royalties, the more revenue you earn on new games, but the less inclined game makers are to develop new games).Develop and discuss in your paper a table that shows the results from each simulation
