Failure to Launch in Two-Sided Markets: A Study of the U.S. Video Game Market
AbstractIn the dynamic two-sided market environment, overpricing one side of the market not only discourages demand on that side but also discourages participation on the other side. Over time, this process can lead to a death spiral. This paper develops a dynamic structural model of the video game market to study launch failures in two-sided markets. The paper models consumers’ purchase decisions for hardware platforms and affiliated software products and software firms’ entry and pricing decisions. This paper also develops a Bayesian Markov Chain Monte Carlo approach to estimate dynamic structural models. The results of the counterfactual simulations show that a failed platform could have survived if it had lowered its hardware prices and that it could not have walked out of the death spiral if it had subsidized software entry.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 42002.
Date of creation: 16 Oct 2012
Date of revision:
Bayesian Markov Chain Monte Carlo (MCMC) Estimation; Failure to Launch; Two-Sided Market; Indirect Network Effect; Forward-Looking Consumer; Video Game Market;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
- NEP-COM-2012-10-27 (Industrial Competition)
- NEP-MKT-2012-10-27 (Marketing)
- NEP-NET-2012-10-27 (Network Economics)
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