Let's look at this in a different way. While the court ruling forbids the selling of R4s in Japan, those who already owns R4s are not affected. This does not mean, however, Nintendo is not letting these people walk away without scratch. Remember that DSi can upgrade their firmware. Even when a hacker modifies a flashcart (could be any) to work on DSi, Nintendo will respond by releasing updates to block it. Unlike other territories, DSi is more of a replacement for older DS in Japan (though DS Lite still exist in the market for Japan). This will affect a lot of gamers in Japan. Whether this will affect western countries remains a mystery. The point is that the banning of R4s in Japan is the first sign of Nintendo actually taking an aggressive approach on flashcarts. This also means that Nintendo and game developers felt threaten by the introduction of flashcarts. Flashcarts can be use for piracy or hoebrew. Apparently, the number of flashcarts being use as a piracy tool has affected the sales of the game. Even so, why Nintendo become aggressive at this point?
What I'm going to say might sounded bias, so watch out! - Correct me if I'm wrong!
* Remember, Nintendo and other game developers only release games because they feel they can score a nice profit.
* As in any market, there is always competition.
* In this case for Nintendo their primary competitors are PSP, flashcarts, cellphones, and other handheld.
* What flashcarts can do is that they can become a medium for hosting commercial games at a lower average cost (since you only cost are flashcarts)
* Depending on the number of people who use flashcarts for commerical gaming, it determines the strength of demend for these carts.
* In economy, flashcarts that are use for other purposes such as hombrewing are complement to DS games, while flashcarts that are use for the purpose of piracy are substitute to DS games.
* In the case of piracy, we are talking about an unfair competition (Not to mention other competitors also benefited from this too).
* When firms (Nintendo and other company) suffering unfair competition, their incentives of introducing games is in doubted.
They can correct this situation by,
* Reducing their supplies (which would rise their equilibrium price back up).
* Filing law suit for unfair competition towards flashcarts (R4 is the unlucky one).
* Decides to exit the market (very unlikely, last resort).
* Collusion (Companies all working together for potentially waging a price war - nasty one, like OPEC).
Does this means I'm supporting Nintendo's decision? No, that is not my point. My point is that Nintendo needs to develop a plan for a better competition. Say implement a stronger means for anti-piracy (whether that is physical or firmware), promoting homebrew (this is a big one, I always hope they would do this), lower prices (not constantly, that would be a price war then!), improve existing games and introduce unique new games in terms of gameplay. Should Nintendo is out of the gaming market, other competitors like PSP will be happy about this. For Sony they can potentially lower the game quality and rising prices (since big compeitior like Nintendo is out of the market) to earn more profit and lower their production cost. For flashcarts manufacturers this means they can rise the price of flashcarts (if they choose to). While Nintendo is in my opinion, not a good model for gaming industry, their existance in the gaming industry is quite important. The banning of sales for R4 is the initial chemical reaction for banning the sales of all flashcarts. Like I said before, we don't know yet how other countries and companies would react toward this. For Japan however, flashcarts probably will soon disappear in the gaming industry market.
I do believe that flashcarts with purpose of homebrew is going to help Nintendo produce better quality games.