Indirect Network Effects and the Quality Dimension: A Look at the Gaming Industry
AbstractWe present theoretical and empirical analyses of indirect network effects for a hardware market with vertically differentiated complementary goods. We demonstrate that the heretofore typical use of aggregate software counts can mis-measure the presence and/or magnitude of indirect network effects. We show this is true when there is correlation along the quality dimension between the marginal utility of software and either 1) the response of software supply to an increase in installed base, or 2) conditional variation in software availability. We illustrate this idea using a simple monopolistic competition model, and through empirical analysis of the 7th-generation console market.
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Bibliographic InfoPaper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2013-10.
Date of creation: May 2013
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More information through EDIRC
indirect network effects; vertical differentiation; video game industry;
Find related papers by JEL classification:
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-15 (All new papers)
- NEP-COM-2013-12-15 (Industrial Competition)
- NEP-NET-2013-12-15 (Network Economics)
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