Network externalities in online video games: an empirical analysis utilizing online product ratings

Yong Liu (), Enping Mai and Jun Yang

Marketing Letters, 2015, vol. 26, issue 4, 679-690

Abstract: Video games have become a major contributor to the USA and global economy. This paper studies network externalities in the online video game industry. Even though network externalities are recognized as a major driver of new product diffusion, testing the existence and the impact of network externalities at the individual level has been a challenge. By employing online product ratings in the estimation, we find that for online video games: (1) a larger installed base generates higher product ratings by individuals; (2) network externalities exhibit nonlinear dynamics over product life cycle—nonsignificant initially, highly significant next, and less significant in the later period; and (3) network externalities differ across consumer segments: the impact of the installed base is stronger on less-experienced consumers than on more-experienced ones. Our results suggest that network externalities should be treated as a dynamic rather than a time-invariant phenomenon and heterogeneous rather than homogeneous across consumers. Copyright Springer Science+Business Media New York 2015

Keywords: Network externalities; Network effects; Online product ratings; User reviews; Video games; Massively multiplayer online role-playing games (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11002-015-9390-x

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