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Software quality and backward compatibility in the video game industry

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  • Sebastian Wai

    (University of South Dakota)

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.

Suggested Citation

  • Sebastian Wai, 2022. "Software quality and backward compatibility in the video game industry," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 545-570, September.
    • Handle: RePEc:spr:epolin:v:49:y:2022:i:3:d:10.1007_s40812-022-00224-2
    DOI: 10.1007/s40812-022-00224-2
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    Cited by:

    1. Federico Boffa & Amedeo Piolatto & Evila Piva & Florian Schuett, 2022. "Industry dynamics in digital markets," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(3), pages 401-407, September.

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    More about this item

    Keywords

    Video games; Consoles; Platform markets; Software quality; Backward compatibility;
    All these keywords.

    JEL classification:

    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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