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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. Hanming Fang & Yang Wang, 2010. "Estimating Dynamic Discrete Choice Models with Hyperbolic Discounting, with an Application to Mammography Decisions," NBER Working Papers 16438, National Bureau of Economic Research, Inc.
  2. Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics, Springer, vol. 5(3), pages 239-292, September.
  3. Christopher R. Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," NBER Working Papers 12604, National Bureau of Economic Research, Inc.
  4. Ariel Pakes & J. Porter & Kate Ho & Joy Ishii, 2007. "Moment inequalities and their application," CeMMAP working papers CWP16/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  6. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  7. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
  8. Saxonhouse, Gary R, 1976. "Estimated Parameters as Dependent Variables," American Economic Review, American Economic Association, vol. 66(1), pages 178-83, March.
  9. Gautam Gowrisankaran & Minsoo Park & Marc Rysman, 2010. "Estimating Network Effects in a Dynamic Environment," Working Papers 10-03, NET Institute, revised May 2010.
  10. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
  11. Andrew Sweeting, 2007. "Dynamic Product Repositioning in Differentiated Product Markets: The Case of Format Switching in the Commercial Radio Industry," NBER Working Papers 13522, National Bureau of Economic Research, Inc.
  12. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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