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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
  • HIROSHI OHASHI

Abstract

We examine 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. We also find 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.

Suggested Citation

  • Matthew T. Clements & Hiroshi Ohashi, 2005. "Indirect Network Effects And The Product Cycle: Video Games In The U.S., 1994–2002," Journal of Industrial Economics, Wiley Blackwell, vol. 53(4), pages 515-542, December.
    • Handle: RePEc:bla:jindec:v:53:y:2005:i:4:p:515-542
    DOI: 10.1111/j.1467-6451.2005.00268.x
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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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