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Vertical Integration, Exclusivity and Game Sales Performance in the US Video Game Industry

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Abstract

This paper empirically investigates the relation between vertical integration and video game performance in the US video game industry. For this purpose, we use a widely used data set from NPD on video game monthly sales from October 2000 to October 2007. We complement these data with handly collected information on video game developers for all games in the sample and the timing of all mergers and acquisitions during that period. By doing this, we are able to separate vertically integrated games from those that are just exclusive to a platform. First, we show that vertically integrated games produce higher revenues and sell more units at higher prices than independent games. Second, we explore the causal effect of vertical integration and find that, for the average integrated game, most of the difference in performance comes from better release and marketing strategies that soften competition and not from ex-ante differences in video game quality. We also find that exclusivity is associated with lower demand. Our estimates suggest that consumers value vertical integration features in their games between 4 and 34 dollars per game.

Suggested Citation

  • Ricard Gil & Frédèric Warzynski, 2010. "Vertical Integration, Exclusivity and Game Sales Performance in the US Video Game Industry," Working Papers 10-06, NET Institute, revised Sep 2010.
  • Handle: RePEc:net:wpaper:1006
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    1. Lesley Chiou, 2009. "Empirical Analysis of Competition between Wal-Mart and Other Retail Channels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 285-322, June.
    2. Robin S. Lee, 2013. "Vertical Integration and Exclusivity in Platform and Two-Sided Markets," American Economic Review, American Economic Association, vol. 103(7), pages 2960-3000, December.
    3. Matthew T. Clements & Hiroshi Ohashi, 2004. "Indirect Network Effects and the Product Cycle: Video Games in the U.S., 1994-2002," CIRJE F-Series CIRJE-F-261, CIRJE, Faculty of Economics, University of Tokyo.
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    5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    6. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-991, September.
    7. Hiroshi Ohashi, 2005. "How does Ownership Structure Affect the Timing of New Product Introductions? Evidence from the U.S. Video Game Market," CARF F-Series CARF-F-026, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    8. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
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    Cited by:

    1. 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.
    2. L. Aguzzoni & E. Argentesi & P. Buccirossi & L. Ciari & T. Duso & M. Tognoni & C. Vitale, 2013. "They Played the Merger Game: A Retrospective Analysis in the UK Videogames Market," Working Papers wp908, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Peters, Frank, 2018. "The business of video games is a multi-player game : Essays on governance choices and performance in a two-sided market in the cultural industries," Other publications TiSEM 886b3148-4bbb-4ea4-b666-0, Tilburg University, School of Economics and Management.
    4. repec:kap:jculte:v:42:y:2018:i:1:d:10.1007_s10824-016-9276-7 is not listed on IDEAS
    5. Venkat Kuppuswamy & Carliss Y. Baldwin, 2012. "Risky Business: The Impact of Property Rights on Investment and Revenue in the Film Industry," Harvard Business School Working Papers 13-007, Harvard Business School, revised Aug 2012.

    More about this item

    Keywords

    vertical integration; exclusivity; video games; developer; publisher; platform.;

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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