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

28 Pages Posted: 3 Jan 2006

See all articles by Matthew T. Clements

Matthew T. Clements

St. Edward's University

Hiroshi Ohashi

University of Tokyo - Faculty of Economics

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Abstract

We examine 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. We also find 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

Clements, Matthew T. and Ohashi, Hiroshi, Indirect Network Effects and the Product Cycle: Video Games in the U.S., 1994-2002. Journal of Industrial Economics, Vol. 53, No. 4, pp. 515-542, December 2005. Available at SSRN: https://ssrn.com/abstract=870634 or http://dx.doi.org/10.1111/j.1467-6451.2005.00268.x

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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