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

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  • Yong Liu
  • Enping Mai
  • Jun Yang

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

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  • Yong Liu & Enping Mai & Jun Yang, 2015. "Network externalities in online video games: an empirical analysis utilizing online product ratings," Marketing Letters, Springer, vol. 26(4), pages 679-690, December.
    • Handle: RePEc:kap:mktlet:v:26:y:2015:i:4:p:679-690
    DOI: 10.1007/s11002-015-9390-x
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    3. Irfan Kanat & T. S. Raghu & Ajay Vinzé, 2020. "Heads or Tails? Network Effects on Game Purchase Behavior in The Long Tail Market," Information Systems Frontiers, Springer, vol. 22(4), pages 803-814, August.
    4. Van Hove, Leo, 2016. "Testing Metcalfe's law: Pitfalls and possibilities," Information Economics and Policy, Elsevier, vol. 37(C), pages 67-76.

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