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Diffusion of a new product under network effects: the US DVD market

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  • Firat Inceoglu
  • Minsoo Park

Abstract

We formulate a model that captures the inter-dependence between hardware demand and software supply - indirect network effect - in the DVD industry. The identification of the network effect comes from the difference in software availability across two different formats: VHS and DVD. We find that a 1% increase in the number of DVD titles raises the demand for DVD players by 0.87%. Simultaneously, a 1% increase in video player ownership leads to a 0.14% increase in the variety of video titles. Our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues.

Suggested Citation

  • Firat Inceoglu & Minsoo Park, 2011. "Diffusion of a new product under network effects: the US DVD market," Applied Economics, Taylor & Francis Journals, vol. 43(30), pages 4803-4815.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:30:p:4803-4815
    DOI: 10.1080/00036846.2010.498358
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    References listed on IDEAS

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    Cited by:

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    2. Gautam Gowrisankaran & Minsoo Park & Marc Rysman, 2010. "Estimating Network Effects in a Dynamic Environment," Working Papers 10-03, NET Institute, revised May 2010.

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