Software quality and backward compatibility in the video game industry

Sebastian Wai

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2022, vol. 49, issue 3, No 6, 545-570

Abstract: Abstract The video game industry is a platform market in which consumers derive value from a console based on the availability of software. This article examines the role of the quality of software in determining sales of associated hardware. I investigate this using data on the seventh generation of video game consoles (Xbox 360, PlayStation 3, and Wii). Using aggregated review scores from Metacritic, I build a novel measure of accumulated quality for both current-generation and backward compatible software for each console. Using an instrumental variables approach, I estimate the effects of these quality measures on weekly console sales. I find that overall software quality has a significant positive impact on hardware sales, while backward compatible software has a much smaller positive effect. Additionally, I incorporate a reliability measure into the estimation and discuss the console industry in the context of platform markets and durable goods.

Keywords: Video games; Consoles; Platform markets; Software quality; Backward compatibility (search for similar items in EconPapers)
JEL-codes: L63 L86 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40812-022-00224-2

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