Digital Consumer Networks and Producer-Consumer Collaboration: Innovation and Product Development in the Video Game Industry

Journal of Management Information Systems, Vol. 24, No. 2, pp. 195-219, Fall 2007

38 Pages Posted: 12 Nov 2007 Last revised: 1 Sep 2014

See all articles by Reina Y. Arakji

Reina Y. Arakji

City University of New York - Department of Statistics and Computer Information Systems

Karl Reiner Lang

City University of New York - Department of Statistics and Computer Information Systems

Abstract

This paper examines new forms of collaboration between producers and consumers that are emerging in the digital entertainment space. Taking the case of the video game industry, we show how some firms have opened a portion of their proprietary content for transformation by consumers and allowed the development of consumer-designed and consumer-implemented derivative products. By re-appropriating these derivatives, video game firms are successfully outsourcing parts of their game design and development process to digital consumer networks. Applying economic analysis, we explore the potential benefits and risks associated with outsourcing to networks of consumers. We also derive the optimal combination of copyright enforcement and consumer compensation. Our results suggest that profit-maximizing producers of video games have incentive to partially open game content to their users and to remunerate the most innovative ones, under the condition that the derivatives constitute complements to, and not substitutes for, the original product. We discuss the implications on firm strategy for innovation.

Keywords: digital entertainment, innovation, outsourcing, producer-consumer collaboration, user-generated content, peer production, video games

JEL Classification: D23, J30, K11, L15, L22, L82, O31, O32

Suggested Citation

Arakji, Reina Y. and Lang, Karl Reiner, Digital Consumer Networks and Producer-Consumer Collaboration: Innovation and Product Development in the Video Game Industry. Journal of Management Information Systems, Vol. 24, No. 2, pp. 195-219, Fall 2007. Available at SSRN: https://ssrn.com/abstract=1029042

Reina Y. Arakji (Contact Author)

City University of New York - Department of Statistics and Computer Information Systems ( email )

17 Lexington Avenue
New York, NY 10010
United States

Karl Reiner Lang

City University of New York - Department of Statistics and Computer Information Systems ( email )

17 Lexington Avenue
New York, NY 10010
United States
646-312-3370 (Phone)
646-312-3351 (Fax)

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