Distilling Network Effects from Steam

20 Pages Posted: 18 Feb 2021 Last revised: 19 Feb 2021

Date Written: February 5, 2021

Abstract

This paper identifies direct network effects in the demand for video games using minimal network data, but leveraging within-consumer variation. I separately identify price elasticities on isolated individuals on the network, and on non-isolated individuals. I then use the discrepancies between estimated price elasticities to identify the direct network effect. As an empirical application, I estimate video game demands and network effects on Steam, the largest video game digital distributor in the world. I compare my method to “traditional” IV-strategies in the literature, which require detailed network data, and find similar results. A 1% increase in friends’ demands, increases demand by .3%. In counterfactuals, I find strong incentives for firms to promote the game through “influencers,” and some incentives for games to merge their gaming networks.

Keywords: Network goods, partially observed networks, direct network externalities

JEL Classification: L14, L82, C31, D62

Suggested Citation

Tudón, José, Distilling Network Effects from Steam (February 5, 2021). Available at SSRN: https://ssrn.com/abstract=3780303 or http://dx.doi.org/10.2139/ssrn.3780303

José Tudón (Contact Author)

ITAM Business School ( email )

Av. Camino a Santa Teresa 930
Colonia Heroes de Padierna
Mexico City, Magdalena Contreras 10700
Mexico

HOME PAGE: http://jtudon.com

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