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Indirect Network Effects and the Product Cycle: Video Games in the U.S., 1994-2002

  • Matthew T. Clements

    (Sauder School of Business, University of British Columbia and Department of Economics, University of Texas)

  • Hiroshi Ohashi

    (Faculty of Economics, The University of Tokyo)

This paper examines the importance of indirect network effects in the U.S.video game market between 1994 and 2002. The diffusion of game systems is analyzed by the interaction between console adoption decisions and software supply decisions. Estimation results suggest that introductory pricing is an effective practice at the beginning of the product cycle, and expanding software variety becomes more effective later. The paper also finds a degree of inertia in the software market that does not exist in the hardware market. This observation implies that software providers continue to exploit the installed base of hardware users after hardware demand has slowed.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2004/2004cf261.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-261.

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Length: 34 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:tky:fseres:2004cf261
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  1. Neil Gandal & Michael Kende & Rafael Rob, 2000. "The Dynamics of Technological Adoption in Hardware/Software Systems: The Case of Compact Disc Players," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 43-61, Spring.
  2. Nair, Harikesh S. & Chintagunta, Pradeep & Dube, Jean-Pierre, 2003. "Empirical Analysis of Indirect Network Effects in the Market for Personal Digital Assistants," Research Papers 1948, Stanford University, Graduate School of Business.
  3. Church, Jeffrey & Gandal, Neil, 1993. "Complementary network externalities and technological adoption," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 239-260, June.
  4. Hiroshi Ohashi, 2003. "The Role of Network Effects in the US VCR Market, 1978-1986," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(4), pages 447-494, December.
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