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Vertical Integration, Exclusivity and Game Sales Performance in the U.S. Video Game Industry

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  • Gil, Ricard
  • Warzynski, Frédéric

Abstract

This paper empirically investigates the relation between vertical integration and video game performance in the U.S. video game industry. For this purpose, we use a widely used data set from NPD on video game montly sales from October 2000 to October 2007. We complement these data with handly collected information on video game developers for all games in the sample and the timing of all mergers and acquisitions during that period. By doing this, we are able to separate vertically integrated games from those that are just exclusive to a platform First, we show that vertically integrated games produce higher revenues, sell more units and sell at higher prices than independent games. Second, we explore the causal effect of vertical integration and find that, for the average integrated game, most of the difference in performance comes from better release period and marketing strategies that soften competition. By default, vertical integration does not seem to have an effect on the quality of video game production. We also find that exclusivity is associated with lower demand.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21049.

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Date of creation: Dec 2009
Date of revision: Dec 2009
Handle: RePEc:pra:mprapa:21049

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Keywords: vertical integration; exclusivity; performance; video games;

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References

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  1. Hiroshi Ohashi, 2005. "How does Ownership Structure Affect the Timing of New Product Introductions? Evidence from the U. S. Video Game Market," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-325, CIRJE, Faculty of Economics, University of Tokyo.
  2. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
  3. Robin S. Lee, 2013. "Vertical Integration and Exclusivity in Platform and Two-Sided Markets," American Economic Review, American Economic Association, American Economic Association, vol. 103(7), pages 2960-3000, December.
  4. 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, NET Institute 07-43, NET Institute, revised Nov 2007.
  5. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  6. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 21(2), pages 297-326, October.
  7. Lesley Chiou, 2009. "Empirical Analysis of Competition between Wal-Mart and Other Retail Channels," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 18(2), pages 285-322, 06.
  8. Robin S. Lee, 2007. "Vertical Integration and Exclusivity in Two-Sided Markets," Working Papers, NET Institute 07-39, NET Institute, revised Aug 2012.
  9. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288817, October.
  10. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  11. James E. Prieger & Wei-Min Hu, 2006. "An Empirical Analysis of Indirect Network Effects in the Home Video Game Market," Working Papers, NET Institute 06-25, NET Institute, revised Oct 2006.
  12. Matthew T. Clements & Hiroshi Ohashi, 2004. "Indirect Network Effects and the Product Cycle: Video Games in the U.S., 1994-2002," Working Papers, NET Institute 04-01, NET Institute, revised Oct 2004.
  13. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, American Economic Association, vol. 84(4), pages 972-91, September.
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Cited by:
  1. Luca Aguzzoni & Elena Argentesi & Paolo Buccirossi & Lorenzo Ciari & Tomaso Duso & Massimo Tognoni & Cristiana Vitale, 2013. "They Played the Merger Game: A Retrospective Analysis in the UK Videogames Market," Discussion Papers of DIW Berlin 1330, DIW Berlin, German Institute for Economic Research.
  2. Venkat Kuppuswamy & Carliss Y. Baldwin, 2012. "Risky Business: The Impact of Property Rights on Investment and Revenue in the Film Industry," Harvard Business School Working Papers 13-007, Harvard Business School, revised Aug 2012.
  3. Peeters, T.J.G., 2013. "External knowledge search and use in new product development," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5906731, Tilburg University.

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