| This dissertation explores indirect network effects (INEs) in the U.S. video game industry, one of the characteristics of a two-sided market. Since a console system is composed of a console and a game title, the INE creates a reciprocal relationship between the console market and the game title market. We find that console firms exploit INEs through manipulating the quality and the variety of game titles. Following the release of a new console the elasticities of game quality and game variety increase initially and then decrease. Furthermore, the peak of game quality elasticity is reached before that of game quality elasticity. Additionally, we find that in any given generation of consoles, the first entrant in the console market sets higher prices than those that follow, due to hard-core consumers, but lower game quality---a first mover disadvantage. Finally console firms which are less integrated vertically such as Sony and Micosoft receive higher quality games than focused console firms, such as Nintendo, Sega, and Atari. This result supports Farrell & Gallini's (1988) argument that competition in the software market encourages better game provision.;Using the duration model, this paper examines the game release patterns of console systems and how the main characteristics of games and publishers affect the game release time. Video game publishers consider INEs in releasing their games in a way that publishers might release their games after seeing console performance. Console makers also utilize an indirect network effect through releasing in-house games. While all console makers release in-house games in order to increase the appeal of the console in the earlier stage, console makers, except for the leading console, pay attention to the supply of their in-house games in the later stage in order to supplement the lack of game titles resulting from INEs.;We demonstrate empirically that the probability of video game publishers releasing their games to a leading console increases more rapidly than the probability of releasing to non-leading consoles compared at average console age. Through the results of the panel probit model, we can explain the exclusivity of game releases as follows. The big-sized publishers have the capability to release many games within a generation they can distribute their games to several consoles. The new entrant publishers, which are mostly small-sized, find it difficult to release to a variety of consoles with all other conditions equal. The game publishers with games which are expected to be blockbusters would like to avoid exclusive deals because they can sell games largely by allowing access to all consoles. |
