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Vertical Integration and Exclusivity in Two-Sided Markets

This paper measures the impact of vertically integrated and exclusive software on industry structure and welfare in the sixth-generation of the U.S. videogame industry (2000-2005). I specify and estimate a dynamic model of both consumer demand for hardware and software products, and software demand for hardware platforms. I use estimates to simulate market outcomes had platforms been unable to own or contract exclusively with software. Driven by increased software compatibility, hardware and software sales would have increased by 7% and 58% and consumer welfare by $1.5B. Gains would be realized only by the incumbent, suggesting exclusivity favored the entrant platforms.

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File URL: http://www.netinst.org/Lee_07-39.pdf
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Paper provided by NET Institute in its series Working Papers with number 07-39.

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Length: 40 pages
Date of creation: Oct 2007
Date of revision: Aug 2012
Handle: RePEc:net:wpaper:0739
Contact details of provider: Web page: http://www.NETinst.org/

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  1. A. Pakes & J. Porter & Kate Ho & Joy Ishii, 2015. "Moment Inequalities and Their Application," Econometrica, Econometric Society, vol. 83, pages 315-334, 01.
  2. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
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  9. Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics (QME), Springer, vol. 5(3), pages 239-292, September.
  10. Christopher Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," Working Papers 629, University of California, Davis, Department of Economics.
  11. Hanming Fang & Yang Wang, 2010. "Estimating Dynamic Discrete Choice Models with Hyperbolic Discounting, with an Application to Mammography Decisions," PIER Working Paper Archive 10-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  12. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
  13. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 53-82.
  14. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
  15. Matthew Gentzkow, 2006. "Valuing New Goods in a Model with Complementarities: Online Newspapers," NBER Working Papers 12562, National Bureau of Economic Research, Inc.
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