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Hardware quality vs. network size in the home video game industry

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  • Gretz, Richard T.

Abstract

This paper analyzes competition between multiple proprietary and incompatible hardware systems when indirect network effects are present and software is provided competitively by third party developers. A discrete-choice demand structure is employed within a game theoretic setting to allow for a continuum of market share possibilities. Empirical evidence supports the claim that excess inertia is not a pervasive problem. Two data sets covering the life of the home video game industry (yearly from 1976 to 2003 and monthly January 1995 to October 2007) yield three main results: (1) market share is 11.4 times more sensitive to hardware quality than network size, (2) the number of available games is 3.69 times more sensitive to hardware quality than network size, and (3) hardware quality has a larger impact than network size on the probability of hardware success.

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  • Gretz, Richard T., 2010. "Hardware quality vs. network size in the home video game industry," Journal of Economic Behavior & Organization, Elsevier, vol. 76(2), pages 168-183, November.
    • Handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:168-183
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    Cited by:

    1. Wiebke Roß & Jens Weghake, 2018. "Wa(h)re Liebe: Was Online-Dating-Plattformen über zweiseitige Märkte lehren," TUC Working Papers in Economics 0017, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
    2. Laussel, Didier & Van Long, Ngo & Resende, Joana, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 84-96.
    3. Huotari, Pontus & Järvi, Kati & Kortelainen, Samuli & Huhtamäki, Jukka, 2017. "Winner does not take all: Selective attention and local bias in platform-based markets," Technological Forecasting and Social Change, Elsevier, vol. 114(C), pages 313-326.
    4. Edward G. Anderson & Geoffrey G. Parker & Burcu Tan, 2014. "Platform Performance Investment in the Presence of Network Externalities," Information Systems Research, INFORMS, vol. 25(1), pages 152-172, March.
    5. Gretz, Richard T. & Basuroy, Suman, 2013. "Why Quality May Not Always Win: The Impact of Product Generation Life Cycles on Quality and Network Effects in High-tech Markets," Journal of Retailing, Elsevier, vol. 89(3), pages 281-300.
    6. Chung-Ho Su & Jen-Ya Wang, 2022. "A Branch-and-Bound Algorithm for Minimizing the Total Tardiness of Multiple Developers," Mathematics, MDPI, vol. 10(7), pages 1-24, April.
    7. Richard T. Gretz & Ashwin Malshe & Carlos Bauer & Suman Basuroy, 2019. "The impact of superstar and non-superstar software on hardware sales: the moderating role of hardware lifecycle," Journal of the Academy of Marketing Science, Springer, vol. 47(3), pages 394-416, May.
    8. Kim, Jin-Hyuk & Prince, Jeffrey & Qiu, Calvin, 2014. "Indirect network effects and the quality dimension: A look at the gaming industry," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 99-108.
    9. Cenamor, Javier, 2021. "Complementor competitive advantage: A framework for strategic decisions," Journal of Business Research, Elsevier, vol. 122(C), pages 335-343.
    10. Marchand, André & Hennig-Thurau, Thorsten, 2013. "Value Creation in the Video Game Industry: Industry Economics, Consumer Benefits, and Research Opportunities," Journal of Interactive Marketing, Elsevier, vol. 27(3), pages 141-157.
    11. Xing Wan & Javier Cenamor & Geoffrey Parker & Marshall Van Alstyne, 2017. "Unraveling Platform Strategies: A Review from an Organizational Ambidexterity Perspective," Sustainability, MDPI, vol. 9(5), pages 1-18, May.
    12. Marchand, André, 2016. "The power of an installed base to combat lifecycle decline: The case of video games," International Journal of Research in Marketing, Elsevier, vol. 33(1), pages 140-154.
    13. Peters, Frank, 2018. "The business of video games is a multi-player game : Essays on governance choices and performance in a two-sided market in the cultural industries," Other publications TiSEM 886b3148-4bbb-4ea4-b666-0, Tilburg University, School of Economics and Management.
    14. Heggedal, Tom-Reiel & Helland, Leif, 2014. "Platform selection in the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 168-177.
    15. Jens Weghake & Fabian Grabicki, 2017. "The Qwerty Phenomenon: Its Relevance In A World With Creative Destruction," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 20, pages 157-173, December.
    16. Lester T. Chan, 2021. "Divide and conquer in two‐sided markets: A potential‐game approach," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 839-858, December.

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