Indirect network effects and the quality dimension: A look at the gaming industry

Jin-Hyuk Kim (), Jeffrey Prince and Calvin Qiu

International Journal of Industrial Organization, 2014, vol. 37, issue C, 99-108

Abstract: Two-sided markets consist of platforms that need to bring both retail consumers and complementary goods producers on board to be successful. Consumer adoption of these platforms can often hinge on the presence and magnitude of indirect network effects — the positive feedback loop where a larger base of adopters of a primary product (“hardware”) creates a larger market for complementary goods (“software”), which in turn increases the value of the primary good. Prior work attempting to measure indirect network effects often uses aggregate counts of software variety to do so. In this paper, we illustrate the importance of accounting for variation in software quality — a feature present in many markets — when conducting this measurement, and provide the conditions under which not doing so results in over- or underestimation of the actual indirect network effect. We apply our framework to the 7th-generation video game console market with quality-differentiated titles and show that in this market the use of aggregate software measures underestimates the indirect network effects by approximately 30%.

Keywords: Network effects; Superstar software; Game console; Killer applications (search for similar items in EconPapers)
JEL-codes: L14 L82 M21 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Indirect Network Effects and the Quality Dimension: A Look at the Gaming Industry (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:37:y:2014:i:c:p:99-108

DOI: 10.1016/j.ijindorg.2014.08.005

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