Anti Trust Atari vs Nintendo Essay Example

obstacle in 1989 when Katsuya Nakagawa, the founder of NES, obtained a patent for the well-known lock-out system. This system involves conducting signal-based comparisons, and if the signals cease or do not match, the game would cease as well.

Nintendo asserted that their lockout system was implemented to protect their copyright for games. However, the cartridges produced by Nintendo were exclusively compatible with the Nintendo Entertainment system, which allowed them to exert significant control over the industry. In 1988, Atari managed to reverse engineer the lockout device and started producing and distributing "Nintendo compatible" games. Meanwhile, Atari also filed a lawsuit against Nintendo, contending that the lockout device and Nintendo's licensing practices constituted a violation of antitrust laws.

Additionally, a suggestion was made by a US congressman for the Justice Department to investigate Nintendo's actions in order to determine if they are violating antitrust laws. In response, Nintendo filed a lawsuit against Tengen, an Atari subsidiary. The legal action claimed infringements on the Lanham Act, breach of contract, unfair competition, and patent violations. Nintendo cited the previous collapse of the video gaming market as evidence for the necessity of its licensing practices and closed system in order to ensure continuous availability of high-quality software.

The court ruled in favor of Nintendo, confirming their successful decision. However, it is still uncertain if consumers will face any negative outcomes. Nintendo operates in various markets and the court backed their "closed system" approach, patent on the Lockout device, and NES's licensing practices.

Economists believe that monopolies, such as Nintendo at the time, only benefit the manufacturer and not society. Being a monopoly without competitors

allowed Nintendo to increase prices for cartridges and consoles without losing sales. This could have led to reduced sales due to affordability concerns, but it also enabled them to sell more at a lower price. Regardless of the outcome, Nintendo would still make profits since there were no adversaries.

The main objective of a monopoly is to maximize profit through sales that generate revenue. This implies that the revenue obtained from selling cartridges and consoles should exceed the production cost. For instance, if producing the 2nd, 3rd, and 4th NES cartridges individually costs $5 each, Nintendo would not manufacture a 5th cartridge as it would incur a production cost of $5 but only generate $3.50 in revenue. This would result in a loss of $1.50, making it an unprofitable sale. In a monopoly scenario, the company will reduce output until marginal revenue aligns with marginal cost.

In order to prevent sales loss in a competitive market, Nintendo must follow the market pricing for cartridges. If a cartridge costs $5 to produce but is sold for $3, Nintendo would need to reevaluate their business strategy as they would experience a $2 loss. On the other hand, if the production cost is $5 and the selling price is $6.25, each sale yields a profit of $1.5. Therefore, as long as the market price matches the marginal cost and no supplier can increase prices, there is competition in the market.

To summarize, the district court did not find enough evidence to back up Atari's allegations. Nintendo was able to demonstrate that Atari's rabbit system was an unauthorized copy of their lockout system. Nevertheless, this does

not indicate that Nintendo is monopolizing the market. In a free market, innovation makes another person's invention insignificant or at least introduces competition.

Nintendo's dominance in the video game market was lost to the Sega Genesis in 1991. The Sega Genesis, a 16-bit console with superior speed and graphics, specifically targeted an older audience. Although Nintendo introduced their own 16-bit console the following year, they were already behind as Sega had established itself in the gaming market. This marked the end of the era of eight-bit Nintendo consoles and intensified competition among video game consoles. Undoubtedly, it signaled the conclusion of an era!