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Hardware quality vs. network size in the home video game industry

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  • Gretz, Richard T.

Abstract

This paper analyzes competition between multiple proprietary and incompatible hardware systems when indirect network effects are present and software is provided competitively by third party developers. A discrete-choice demand structure is employed within a game theoretic setting to allow for a continuum of market share possibilities. Empirical evidence supports the claim that excess inertia is not a pervasive problem. Two data sets covering the life of the home video game industry (yearly from 1976 to 2003 and monthly January 1995 to October 2007) yield three main results: (1) market share is 11.4 times more sensitive to hardware quality than network size, (2) the number of available games is 3.69 times more sensitive to hardware quality than network size, and (3) hardware quality has a larger impact than network size on the probability of hardware success.

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  • Gretz, Richard T., 2010. "Hardware quality vs. network size in the home video game industry," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 168-183, November.
  • Handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:168-183
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    1. repec:gam:jsusta:v:9:y:2017:i:5:p:734-:d:97388 is not listed on IDEAS
    2. Laussel, Didier & Van Long, Ngo & Resende, Joana, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 84-96.
    3. Heggedal, Tom-Reiel & Helland, Leif, 2014. "Platform selection in the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 168-177.
    4. Huotari, Pontus & Järvi, Kati & Kortelainen, Samuli & Huhtamäki, Jukka, 2017. "Winner does not take all: Selective attention and local bias in platform-based markets," Technological Forecasting and Social Change, Elsevier, vol. 114(C), pages 313-326.
    5. Kim, Jin-Hyuk & Prince, Jeffrey & Qiu, Calvin, 2014. "Indirect network effects and the quality dimension: A look at the gaming industry," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 99-108.

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