Indirect Network Effects and the Quality Dimension: A Look at the Gaming Industry

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

No 2013-10, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: We present theoretical and empirical analyses of indirect network effects for a hardware market with vertically differentiated complementary goods. We demonstrate that the heretofore typical use of aggregate software counts can mis-measure the presence and/or magnitude of indirect network effects. We show this is true when there is correlation along the quality dimension between the marginal utility of software and either 1) the response of software supply to an increase in installed base, or 2) conditional variation in software availability. We illustrate this idea using a simple monopolistic competition model, and through empirical analysis of the 7th-generation console market.

Keywords: indirect network effects; vertical differentiation; video game industry (search for similar items in EconPapers)
JEL-codes: L14 L82 (search for similar items in EconPapers)
Date: 2013-05
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Journal Article: Indirect network effects and the quality dimension: A look at the gaming industry (2014)
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