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An Empirical Analysis of Indirect Network Effects in the Home Video Game Market

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Author Info
James E. Prieger () (Pepperdine University)
Wei-Min Hu () (University of California, Davis)

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Abstract

We explore the indirect network effect in the market for home video games. We examine the video game console makers’ strategic choice between increasing demand by lowering console price and by encouraging the growth of software variety. We also explore the existence of an applications barrier to entry in the console market, and find that there is little evidence for such a barrier. Finally, we assess the applicability of the model to out-of-sample situations, to look at whether our model and previous similar models can generalize to other markets for purposes of marketing or antitrust inquiry. We find that the model generalizes reasonably well to the Japanese market for the same generation of gaming systems, but poorly to previous generations in the US market.

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Publisher Info
Paper provided by NET Institute in its series Working Papers with number 06-25.

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Length: 46 pages
Date of creation: Oct 2006
Date of revision: Oct 2006
Handle: RePEc:net:wpaper:0625

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  1. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Blackwell Publishing, vol. 40(1), pages 85-103, March. [Downloadable!] (restricted)
  2. Neil Gandal, 1994. "Hedonic Price Indexes for Spreadsheets and an Empirical Test for Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 160-170, Spring. [Downloadable!] (restricted)
  3. Church, Jeffrey & Gandal, Neil, 1993. "Complementary network externalities and technological adoption," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 239-260, June. [Downloadable!] (restricted)
    Other versions:
  4. Neil Gandal & Michael Kende & Rafael Rob, 2000. "The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 43-61, Spring.
  5. David Dranove & Neil Gandal, 2003. "The Dvd-vs.-Divx Standard War: Empirical Evidence of Network Effects and Preannouncement Effects," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 12(3), pages 363-386, 09. [Downloadable!] (restricted)
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  7. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  8. Harikesh Nair & Pradeep Chintagunta & Jean-Pierre Dubé, 2004. "Empirical Analysis of Indirect Network Effects in the Market for Personal Digital Assistants," Quantitative Marketing and Economics, Springer, vol. 2(1), pages 23-58, 03. [Downloadable!]
    Other versions:
  9. Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 259-270, June. [Downloadable!] (restricted)
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  1. Kenneth S. Corts & Mara Lederman, 2007. "Software Exclusivity and the Scope of Indirect Network Effects in the U.S. Home Video Game Market," Working Papers 07-43, NET Institute, revised Nov 2007. [Downloadable!]
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