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Diffusion of a new product under network effects: the US DVD market

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  • Firat Inceoglu
  • Minsoo Park
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    Abstract

    We formulate a model that captures the inter-dependence between hardware demand and software supply - indirect network effect - in the DVD industry. The identification of the network effect comes from the difference in software availability across two different formats: VHS and DVD. We find that a 1% increase in the number of DVD titles raises the demand for DVD players by 0.87%. Simultaneously, a 1% increase in video player ownership leads to a 0.14% increase in the variety of video titles. Our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036846.2010.498358
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 43 (2011)
    Issue (Month): 30 ()
    Pages: 4803-4815

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    Handle: RePEc:taf:applec:v:43:y:2011:i:30:p:4803-4815

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