The recently announced "OLED model" of the Nintendo Switch will retail for $50 more than the $300 standard model when the upgrade goes on sale on October 1. But the new model is estimated to cost Nintendo only about $10 more to produce, increasing the company's profit margins on the high end of its still-hot gaming hardware.

That cost estimate comes from Bloomberg News' Takashi Mochizuki, who breaks down the estimated production cost increase like this:

• 7-inch Samsung OLED screen: $3 to $5 more per unit (according to Yoshio Tamura, co-founder of industry research firm DSCC)
• 32GB of additional internal storage: $3.50 per unit (according to Omdia’s Akira Minamikawa)
• New dock w/ LAN port and other improvements: "a few dollars more" per unit

Loss leaders and profit centers

Historically, many console-makers have sold their hardware at cost or at a loss in order to attract a bigger audience of potential customers for software (and the console-maker licensing fees that come with it). But while Nintendo initially sold the Wii U at a loss, it has made a profit on every Switch hardware sale since its launch, with estimates at the time suggesting that the $300 system cost about $260 to produce (per unit) in 2017.

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Nintendo's production costs have likely only decreased in the years since, though that trend may have reversed in recent months due to the worldwide semiconductor shortage. In any case, the MSRP of standard Switch hardware hasn't budged in the more than four years that the console has been on the market.

That's a bit surprising, as the median console usually sees its first price drop two years or so after its initial launch. But it's also not too surprising in this case because the Switch is still selling incredibly well at its original price.

That said, even the successful PS4 saw its first price drop less than two years after its US launch, and the hot-selling Wii got a price drop less than three years after its launch. The Switch, by contrast, has already passed its fourth anniversary without a change to its launch price.

While the price of the top-end Switch is going up, the $200 Switch Lite and $300 standard model are still on store shelves, providing an on-ramp for more price-sensitive Switch customers. It's also not hard to foresee a future in which the new OLED Switch simply replaces the aging standard model at the $300 price point, giving customers a small stat upgrade rather than a direct price drop.

Regardless, the manufacturing costs of the new OLED model are only one part of the pricing equation. The real question is whether consumers as a whole will see the improved screen and other tweaks to the hardware as worth $50, a nearly 17 percent jump in asking price. Nintendo's hardware-pricing moves in 2022 will go a long way toward answering that question.

Listing image by Nintendo