Failure to Launch in Two-Sided Markets: A Study of the U.S. Video Game Market

Yiyi Zhou ()

MPRA Paper from University Library of Munich, Germany

Abstract: In the dynamic two-sided market environment, overpricing one side of the market not only discourages demand on that side but also discourages participation on the other side. Over time, this process can lead to a death spiral. This paper develops a dynamic structural model of the video game market to study launch failures in two-sided markets. The paper models consumers’ purchase decisions for hardware platforms and affiliated software products and software firms’ entry and pricing decisions. This paper also develops a Bayesian Markov Chain Monte Carlo approach to estimate dynamic structural models. The results of the counterfactual simulations show that a failed platform could have survived if it had lowered its hardware prices and that it could not have walked out of the death spiral if it had subsidized software entry.

Keywords: Bayesian Markov Chain Monte Carlo (MCMC) Estimation; Failure to Launch; Two-Sided Market; Indirect Network Effect; Forward-Looking Consumer; Video Game Market (search for similar items in EconPapers)
JEL-codes: C11 C61 L11 L68 (search for similar items in EconPapers)
Date: 2012-10-16
New Economics Papers: this item is included in nep-com, nep-mkt and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:42002

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