Software Exclusivity and the Scope of Indirect Network Effects in the U.S. Home Video Game Market

Kenneth Corts and Mara Lederman ()
Additional contact information
Mara Lederman: Rotman School of Management, University of Toronto, http://www.rotman.utoronto.ca/facBios/viewFac.asp?facultyID=mara.lederman

No 07-43, Working Papers from NET Institute

Abstract: This paper investigates the scope of indirect network effects in the home video game industry. We argue that the increasing prevalence of non-exclusive software gives rise to indirect network effects that exist between users of competing and incompatible hardware platforms. This is because software non-exclusivity, like hardware compatibility, allows a software firm to sell to a market broader than a single platform’s installed base, leading to a dependence of any particular platform’s software on all firms’ installed bases. We look for evidence of these market-wide network effects by estimating a model of hardware demand and software supply. Our software supply equation allows the supply of games for a particular platform to depend not only on the installed base of that platform, but also on the installed base of competing platforms. Our results indicate the presence of both a platform-specific network effect and – in recent years – a cross-platform (or generation-wide) network effect. Our finding that the scope of indirect network effects in this industry has widened suggests one reason that this market, which is often cited as a canonical example of one with strong indirect network effects, is no longer dominated by a single platform.

Keywords: network effects; software exclusivity; video games (search for similar items in EconPapers)
JEL-codes: L11 L15 L82 (search for similar items in EconPapers)
Pages: 46
Date: 2007-11, Revised 2007-11
New Economics Papers: this item is included in nep-com, nep-mic and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Software exclusivity and the scope of indirect network effects in the U.S. home video game market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:0743

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