An Empirical Analysis of Indirect Network Effects in the Home Video Game Market

46 Pages Posted: 2 Nov 2006 Last revised: 30 Aug 2014

See all articles by James E. Prieger

James E. Prieger

Pepperdine University - School of Public Policy

Wei-Min Hu

University of California, Davis

Date Written: October 1, 2006

Abstract

We explore the indirect network effect in the market for home video games. We examine the video game console makers' strategic choice between increasing demand by lowering console price and by encouraging the growth of software variety. We also explore the existence of an applications barrier to entry in the console market, and find that there is little evidence for such a barrier. Finally, we assess the applicability of the model to out-of-sample situations, to look at whether our model and previous similar models can generalize to other markets for purposes of marketing or antitrust inquiry. We find that the model generalizes reasonably well to the Japanese market for the same generation of gaming systems, but poorly to previous generations in the US market.

Suggested Citation

Prieger, James E. and Hu, Wei-Min, An Empirical Analysis of Indirect Network Effects in the Home Video Game Market (October 1, 2006). NET Institute Working Paper No. 06-25, Available at SSRN: https://ssrn.com/abstract=941223 or http://dx.doi.org/10.2139/ssrn.941223

James E. Prieger (Contact Author)

Pepperdine University - School of Public Policy ( email )

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HOME PAGE: http://sites.google.com/a/pepperdine.edu/jprieger/

Wei-Min Hu

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

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