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

NET Institute Working Paper No. 04-01

31 Pages Posted: 29 Dec 2004

See all articles by Matthew T. Clements

Matthew T. Clements

St. Edward's University

Hiroshi Ohashi

University of Tokyo - Faculty of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

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.

Keywords: indirect network effects; penetration pricing; software variety

JEL Classification: C23, L68, M21

Suggested Citation

Clements, Matthew T. and Ohashi, Hiroshi, Indirect Network Effects and the Product Cycle: Video Games in the U.S., 1994-2002 (October 2004). NET Institute Working Paper No. 04-01. Available at SSRN: https://ssrn.com/abstract=500922 or http://dx.doi.org/10.2139/ssrn.500922

Matthew T. Clements (Contact Author)

St. Edward's University ( email )

3001 South Congress Avenue
Austin, TX 78704
United States
(512) 428-1321 (Phone)

Hiroshi Ohashi

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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