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Vertical Integration and Exclusivity in Two-Sided Markets

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Abstract

This paper measures the impact of vertically integrated and exclusive software on industry structure and welfare in the sixth-generation of the U.S. videogame industry (2000-2005). I specify and estimate a dynamic model of both consumer demand for hardware and software products, and software demand for hardware platforms. I use estimates to simulate market outcomes had platforms been unable to own or contract exclusively with software. Driven by increased software compatibility, hardware and software sales would have increased by 7% and 58% and consumer welfare by $1.5B. Gains would be realized only by the incumbent, suggesting exclusivity favored the entrant platforms.

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File URL: http://www.netinst.org/Lee_07-39.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 07-39.

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Length: 40 pages
Date of creation: Oct 2007
Date of revision: Aug 2012
Handle: RePEc:net:wpaper:0739

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Web page: http://www.NETinst.org/

Related research

Keywords: platform competition; two-sided markets; vertical integration; exclusive contracting; dynamic demand; estimation of network effects; videogame industry;

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  1. Christopher R. Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," Working Papers 06-08, NET Institute, revised Sep 2006.
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  3. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  4. Saxonhouse, Gary R, 1976. "Estimated Parameters as Dependent Variables," American Economic Review, American Economic Association, vol. 66(1), pages 178-83, March.
  5. Nair, Harikesh, S., 2006. "Intertemporal Price Discrimination with Forward-Looking Consumers: Application to the US Market for Console Video-Games," Research Papers 1947, Stanford University, Graduate School of Business.
  6. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
  7. Hanming Fang & Yang Wang, 2010. "Estimating Dynamic Discrete Choice Models with Hyperbolic Discounting, with an Application to Mammography Decisions," NBER Working Papers 16438, National Bureau of Economic Research, Inc.
  8. Ariel Pakes & J. Porter & Kate Ho & Joy Ishii, 2007. "Moment inequalities and their application," CeMMAP working papers CWP16/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  9. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  10. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
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Cited by:
  1. Gil, Ricard & Warzynski, Frederic, 2009. "Vertical Integration, Exclusivity and Game Sales Performance in the U.S. Video Game Industry," Working Papers 09-19, University of Aarhus, Aarhus School of Business, Department of Economics.
  2. Cabral, Luis, 2009. "Dynamic price competition with network effects," IESE Research Papers D/843, IESE Business School.
  3. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-43, Summer.
  4. Robin S. Lee & Tim Wu, 2009. "Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 61-76, Summer.
  5. María Fernanda Viecens, 2009. "Compatibility with Firm Dominance," Working Papers 2009-12, FEDEA.

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