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Indirect Network Effects and the Product Cycle: Video Games in the U.S., 1994-2002

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  • Matthew T. Clements

    (Sauder School of Business, University of British Columbia and Department of Economics, University of Texas)

  • Hiroshi Ohashi

    (Faculty of Economics, The University of Tokyo)

Abstract

This paper examines the importance of indirect network effects in the U.S.video game market between 1994 and 2002. The diffusion of game systems is analyzed by the interaction between console adoption decisions and software supply decisions. Estimation results suggest that introductory pricing is an effective practice at the beginning of the product cycle, and expanding software variety becomes more effective later. The paper also finds a degree of inertia in the software market that does not exist in the hardware market. This observation implies that software providers continue to exploit the installed base of hardware users after hardware demand has slowed.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2004/2004cf261.pdf
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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-261.

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Length: 34 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:tky:fseres:2004cf261

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Cited by:
  1. Bartelsman, Eric & Dobbelaere, Sabien & Peters, Bettina, 2013. "Allocation of Human Capital and Innovation at the Frontier: Firm-Level Evidence on Germany and the Netherlands," IZA Discussion Papers 7540, Institute for the Study of Labor (IZA).
  2. Aguzzoni, Luca & Argentesi, Elena & Buccirossi, Paolo & Ciari, Lorenzo & Duso, Tomaso & Tognoni, Massimo & Vitale, Cristiana, 2013. "They played the merger game: A retrospective analysis in the UK videogames market," DICE Discussion Papers 113, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Marc Rysman & Gautam Gowrisankaran & Minsoo Park, 2011. "Measuring Network Effects in a Dynamic Environment," Boston University - Department of Economics - Working Papers Series WP2011-061, Boston University - Department of Economics.
  4. Claussen, Jörg & Falck, Oliver & Grohsjean, Thorsten, 2010. "The Strength of Direct Ties: Evidence from the Electronic Game Industry," Discussion Papers in Business Administration 12298, University of Munich, Munich School of Management.
  5. Binken, J.L.G. & Stremersch, S., 2008. "The Effect of Superstar Software on Hardware Sales in System Markets," ERIM Report Series Research in Management ERS-2008-025-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  6. Engelstätter, Benjamin & Ward, Michael R., 2013. "Strategic timing of entry: Evidence from video games," ZEW Discussion Papers 13-117, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Hernández-Mireles, C. & Franses, Ph.H.B.F., 2010. "The Launch Timing of New and Dominant Multigeneration Technologies," ERIM Report Series Research in Management ERS-2010-022-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  8. Karol J. Borowiecki & Juan Prieto-Rodriguez, 2013. "Video Games Playing: A substitute for cultural consumptions?," ACEI Working Paper Series AWP-07-2013, the Association for Cultural Economics International, revised Nov 2013.
  9. Bataille, Marc & Steinmetz, Alexander, 2013. "Intermodal competition on some routes in transportation networks: The case of inter urban buses and railways," DICE Discussion Papers 84, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  10. Dong Choi & Jongeun Oh & Yeonbae Kim & Junseok Hwang, 2012. "Competition in the Korean Internet Portal Market: Network Effects, Profit, and Market Efficiency," Review of Industrial Organization, Springer, vol. 40(1), pages 51-73, February.
  11. Jörg Claussen & Tobias Kretschmer & Thomas Spengler, 2012. "Market Leadership Through Technology - Backward Compatibility in the U.S. Handheld Video Game Industry," CEP Discussion Papers dp1124, Centre for Economic Performance, LSE.
  12. Daniel Birke, 2009. "The Economics Of Networks: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 762-793, 09.
  13. Hernández-Mireles, C. & Fok, D. & Franses, Ph.H.B.F., 2008. "The Triggers, Timing and Speed of New Product Price Landings," ERIM Report Series Research in Management ERS-2008-044-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  14. Stremersch, S. & Tellis, G.J. & Franses, Ph.H.B.F. & Binken, J.L.G., 2007. "Indirect Network Effects in New Product Growth," ERIM Report Series Research in Management ERS-2007-019-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  15. Jin-Hyuk Kim & Jeffrey T. Prince & Calvin Qiu, 2013. "Indirect Network Effects and the Quality Dimension: A Look at the Gaming Industry," Working Papers 2013-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

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