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Case Study Intro

The CEO of a large diversified entertainment corporation has asked you to examine the operations of a subsidiary of his corporation that manufactures video game hardware.

The Division is the 3rd largest manufacturer of hardware in the video game industry with 10% market share. The top 2 manufacturers have 40% and 35% market share, respectively. The remainder of the market is fragmented, with many small producers. The current estimate of video game industry hardware sales is 5,000,000 units a year. Industry growth has been strong though over the last few months, sales growth has slowed.

The top two competitors also develop, manufacture and sell software/games – though our client’s division does not develop or manufacture software/games, they are only involved in software/game sales. Industry growth of software continues to increase.

Industry leaders have established hardware standards. Various product features are constantly developed (e.g., new remote joystick), to appeal to various market segments.

The CEO wants to know if he should approve a $200 million capital request for tripling the Division’s capacity.

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