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

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  • 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)

Abstract

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.

Suggested Citation

  • 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.
    • Handle: RePEc:tky:fseres:2004cf261
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2004/2004cf261.pdf
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    References listed on IDEAS

    as
    1. Andrei Hagiu, 2004. "Two-Sided Platforms: Pricing and Social Efficiency - Extensions," Discussion papers 04036, Research Institute of Economy, Trade and Industry (RIETI).
    2. Church, Jeffrey & Gandal, Neil, 1993. "Complementary network externalities and technological adoption," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 239-260, June.
    3. 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 (QME), Springer, vol. 2(1), pages 23-58, March.
    4. 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.
    5. Andrei Hagiu, 2004. "Two-Sided Platforms: Pricing and Social Efficiency," Discussion papers 04035, Research Institute of Economy, Trade and Industry (RIETI).
    6. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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