Over at Second Story Gamer, Mark asks a great question: Why do games cost so much? As he points out, movies cost as much or (usually) more than games to produce, yet DVD film copies are sold for half or a third the price of most games.
Certainly, more people watch films than play games, and games are divided by platform in a way that is not qualitative; so it is probably true that games have a smaller audience to work with. I say "probably" because the number of people interested in movies does not directly translate into number of DVD consumers. There is an even more significant difference between theater customers and DVD consumers. But the audience size and newness of the game medium definitely has an effect.
I doubt that alone justifies the prices.
I would buy twice as many games each year if they didn't cost so much. More importantly, I know many people who do not consider gaming a viable hobby mainly because of the prices. Last year, my brother and cousin were avid fans of LOTR: Battle for Middle Earth 2 on PC. We played together multiple times per week and, for the first time since the SNES, they were unrepentant gamers. They were both initially hooked when they watched me play the game, but both were hesitant to purchase the game until I pointed out that it had been on the market for many months already and could be bought for under 25 dollars.
I think the primary cause of the current price norms lies in the industry's origin: software. Because games were originally sold as software, they were and are sold like other software. They shouldn't be. Games are marketed and bought for aesthetic appeal, not for utility. If you can't think of games as an art form, get over it -- something doesn't have to be good art ("artistic") to be art. Games should be sold like other works of art; in particular, like movies... the other technology-based media.
Like Mark, I see reason for hope.
He's right that the growth of direct downloads will have an effect, but that's not the only light at the end of the tunnel. Much of the change begins with retailers. Already, Walmart and similar retail chains place game products next to music and movie products, whereas games were sold only in software and computer shops not long ago. It's occuring the opposite route, too. Gamestop and other game-focused retailers are gradually increasing stocks and presentations of DVDs in their stores.
Not coincidentally, the film industry and music industry are increasingly involved in the game industry. Writers, animators, and actors are shared. Spielberg, the most popular film director of his generation, has taken a direct interest in games. Games like Guitar Hero and Rock Band continue to rake in phenomenal sales, and the upcoming Brütal Legend: Roadshow of Destruction is being built from the ground up with the help of legendary rockstars like Lemmy and Zakk Wylde. I wouldn't be surprised if we eventually see further corporate convergence across mediums... in the way Sony publishes films, music, and games.
Lower prices will eventually be forced onto publishers by such changes. A smart publisher would be figuring out right now how to beat the tide.