Hardware quality vs. network size in the home video game industry
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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Liebowitz, S J & Margolis, Stephen E, 1990. "The Fable of the Keys," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 1-25, April.
- Stavins, Joanna, 1997. "Estimating demand elasticities in a differentiated product industry: The personal computer market," Journal of Economics and Business, Elsevier, vol. 49(4), pages 347-367.
- Shy,Oz, 2001.
"The Economics of Network Industries,"
Cambridge University Press, number 9780521800952, October.
- Hausman, Jerry A, 1978.
"Specification Tests in Econometrics,"
Econometric Society, vol. 46(6), pages 1251-71, November.
- David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-37, May.
- Church, J. & Gandal, N., 1991.
"Complementary Network Externalities and Technological Adoption,"
5-91, Tel Aviv.
- Church, Jeffrey & Gandal, Neil, 1993. "Complementary network externalities and technological adoption," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 239-260, June.
- Matthew T. Clements, 2005. "Inefficient Standard Adoption: Inertia and Momentum Revisited," Economic Inquiry, Western Economic Association International, vol. 43(3), pages 507-518, July.
- Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
- Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977.
"Monopolistic Competition and Optimum Product Diversity,"
American Economic Review,
American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Paul A. David, 2007.
"Path dependence: a foundational concept for historical social science,"
Cliometrica, Journal of Historical Economics and Econometric History,
Association Française de Cliométrie (AFC), vol. 1(2), pages 91-114, July.
- Paul A. David, 2011. "Path Dependence: A Foundational Concept for Historical Social Science," Chapters, in: Law, Economics and Evolutionary Theory, chapter 4 Edward Elgar.
- Woeckener, Bernd, 2000. "The competition of user networks: ergodicity, lock-ins, and metastability," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 85-99, February.
- Nair, Harikesh S. & Chintagunta, Pradeep & Dube, Jean-Pierre, 2003.
"Empirical Analysis of Indirect Network Effects in the Market for Personal Digital Assistants,"
1948, Stanford University, Graduate School of Business.
- Harikesh Nair & Pradeep Chintagunta & Jean-Pierre Dubé, 2004. "Empirical Analysis of Indirect Network Effects in the Market for Personal Digital Assistants," Quantitative Marketing and Economics, Springer, vol. 2(1), pages 23-58, 03.
- Richard Gretz, 2010. "Console Price and Software Availability in the Home Video Game Industry," Atlantic Economic Journal, International Atlantic Economic Society, vol. 38(1), pages 81-94, March.
- Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
- Jean-Pierre H. Dubé & Günter J. Hitsch & Pradeep K. Chintagunta, 2010. "Tipping and Concentration in Markets with Indirect Network Effects," Marketing Science, INFORMS, vol. 29(2), pages 216-249, 03-04.
- Tanjim Hossain & John Morgan, 2009. "The Quest for QWERTY," American Economic Review, American Economic Association, vol. 99(2), pages 435-40, May.
- S. J. Liebowitz & Stephen E. Margolis, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-150, Spring.
- Sangin Park, 2004. "Quantitative Analysis of Network Externalities in Competing Technologies: The VCR Case," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 937-945, November.
- Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 55-83, March.
- Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 259-270, June.
- Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:168-183. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.