Assess whether the market for video game development is contestable

Edexcel A-Level Economics Paper 1 June 2025 Extract

With reference to the information provided, assess whether the market for video game development is contestable. (10 marks)

1. The market for video game development is arguably contestable as there are signs that there are low barriers to entry and exit and low sunk costs.
2. Extract A mentions that digital markets have 'brought about increased competition across a wide range of products and services'.
3. In terms of video game development, it has allowed groups of people to work together online and also market and sell their product online.
4. This reduces costs such as the rent for a physical store.
5. Additionally, startups can make use of tools like AI, such as ChatGPT (Extract C).
6. This means that firms do not need to hire as many specialist staff, such as software engineers, who would be much more expensive.
7. Overall, these factors (digital markets and automation) make it easier for new firms to enter the video game market than before.

1. On the other hand, you could argue that the market for video games is becoming less contestable.
2. This is because large firms are clearly able to exploit and increase their market share.
3. For example, Microsoft are by buying companies like Activision.
4. As firms like Microsoft start to own more of the smaller video game developers, they increase their market share and can exploit more economies of scale.
5. This makes it even harder for new firms to enter the video game market and compete on costs with giants like Microsoft.

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