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Suppose that a video game console manufacturer increases spending on advertising to video game players. What...

  1. Suppose that a video game console manufacturer increases spending on advertising to video game players. What do you predict could happen to the price of the console charged to consumers and the licensing fees charged to game developers? Explain.
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Answer #1

Answer - Since the seller is incuring the advertising the video games , it will be incuring heavy costs. To recover this cost , it will charge the higher price and may practise the price discrimination. This will increase the price charged from the consumers. This would increase the inefficiency in market and will create deadweight loss. Hence the regulatory forces may intervene and increase the license fee upon the firm in order to reduce the inefficiency and deadweight loss. Hence the firm will have to incur more license fee

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