Up and to the right, with a business model driven right into the dirt.
Much of that increased cost has gone towards creating art assets, with another sizeable chunk for hiring actors to do voice-over work. It's not a question of whether better graphics are something gamers want (they are), or if Max Payne 3 is gorgeous (it is). The cost curve is unsustainable over the long term, particularly given the trend towards handheld gaming.
What all of this suggests is that the game industry is in desperate need of an overhaul. Gamers aren't going to accept $80-$100 games, especially not with mobile prices in the 99 cent - $4.99 range and with food and gas prices on the rise. Attempts to seize the used game market and turn it into a profit source are liable to backfire and won't generate enough revenue to solve the problem in any case.
There's been some confusion on the point of this story, so I'm inserting a paragraph to address it directly.
If the long-term cost curve isn't sustainable and better art/special effects/voice overs are primarily responsible for rising costs, game developers need to find more sustainable ways of building better games. Unlike investments in art, which may only be useful for 1-2 titles, investing in building better games through improved AI routines, imaginative storytelling, and finding ways to make gamers feel more a part of the story can be carried over from engine to engine or even between console generations.
Solving The Problem One Headache At A Time:
As part of our positive approach to the problem (our therapist says it's a necessity), we've put together a list of some of the industry's most annoying game play clichés, from scripted sequences to impossibly incompetent NPCs -- and how they might be solved. Hopefully *will* be solved, because some of these techniques are older than dirt.