OUYA: A Market for Lemons Approach
http://www.fortune.com/2015/04/28/exclusive-gaming-startup-ouya-needs-to-find-a-buyer-quickly/
Buyers expect something: good, bad, or lemon. In the case of the OUYA, an android-based micro console, the expectations were very high and then they went very sour. The OUYA was funded via KickStarter. Originally asking for $950,000, the OUYA managed to raise over 8.5 million dollars from 63,000 backers. With the amount of hype garnered by the console, buyers expected a lot more than what they received.
If we were to look at the OUYA in the market for lemons maybe we could see why the reception of the console was so mediocre. Lets say that a PlayStation 4 is a Good console and the OUYA is a Bad console. Lets look at the prices for each console’s controller. The OUYA controller is currently priced at $44 while a PS4 controller is priced at $38. The buyers expected value for a PS4 controller is 60 while his expectation for a OUYA controller is $8.50. If we assume only Good consoles were sold, then every controller would be sold since the value of the buyer is much greater than the value of a seller. Looking at only Bad consoles, no Bad console controller would be sold as the controller price is 5 times that of the buyers expectations. If we assume 90% of controllers are PS4 controllers and the remaining 10% are OUYA, the expected equilibrium price is $54.85. Under this equilibrium, every Good controller would be sold, but again, the OUYA controller fails to be reasonable priced.
Using that information, lets take a look at what the OUYA provides. One would expect that a new console from a KickStarter company should provide something innovative or game-changing to incite donators. While they certainly had success in advertising, the console does nothing more than put an android device on your television. While other consoles are promising 4K technology and virtual reality, the OUYA falls short. The original selling price of the OUYA and a controller was $99. For $99 one could buy a google Chromecast, which does 50% of what the OUYA does, and pocket the rest of the money. It is hard to see why anyone would buy an OUYA given its capabilities. The buyers certainly expect more than a lemon when it comes to spending money.