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Estimating Network Effects in a Dynamic Environment

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Abstract

This paper proposes methods for identifying indirect network effects with dynamically optimizing consumers purchasing a durable hardware good and associated software. We apply this model to data drawn from the DVD player and titles markets. We observe model-level prices, sales and characteristics of DVD players and sales and availability of DVDs at the level of the month for 10 years. We augment these aggregate data with household survey data on player holdings. In our model, forward looking consumers buy possibly multiple DVD players over time and benefit from the evolution of the titles market. We address issues of clustering, spurious correlation and endogeneity.

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File URL: http://www.netinst.org/Gowrisankaran_Park_Rysman_10-03.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 10-03.

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Length: 27 pages
Date of creation: May 2010
Date of revision: May 2010
Handle: RePEc:net:wpaper:1003

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

Related research

Keywords: empirics; network effects; DVD players;

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References

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  1. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
  2. Daniel A. Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying Equilibrium Network Externalities in the ACH Banking Industry," NBER Working Papers 12488, National Bureau of Economic Research, Inc.
  3. Gandal, N. & Kende, M. & Rob, R., 1997. "The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players," Papers 21-97, Tel Aviv.
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  6. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
  7. Marc Rysman, 2004. "Competition Between Networks: A�Study of the Market for Yellow�Pages," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 483-512, 04.
  8. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
  9. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
  10. repec:rje:randje:v:37:y:2006:3:p:738-761 is not listed on IDEAS
  11. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  12. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  13. Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
  14. Rosse, James N, 1970. "Estimating Cost Function Parameters without Using Cost Data: Illustrated Methodology," Econometrica, Econometric Society, vol. 38(2), pages 256-75, March.
  15. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
  16. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  17. Hiroshi Ohashi, 2003. "The Role of Network Effects in the US VCR Market, 1978-1986," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(4), pages 447-494, December.
  18. 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.
  19. Sangin Park, 2004. "Quantitative Analysis of Network Externalities in Competing Technologies: The VCR Case," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 937-945, November.
  20. Thierry Magnac & David Thesmar, 2002. "Identifying Dynamic Discrete Decision Processes," Econometrica, Econometric Society, vol. 70(2), pages 801-816, March.
  21. Chiou, Lesley, 2008. "The timing of movie releases: Evidence from the home video industry," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1059-1073, September.
  22. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August.
  23. Corts, Kenneth S. & Lederman, Mara, 2009. "Software exclusivity and the scope of indirect network effects in the U.S. home video game market," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 121-136, March.
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