Network effects in the United States DVD market

This dissertation studies product diffusion under indirect network effects in the U.S. DVD market.; Chapter 1 studies the evolution of the U.S. DVD market from the beginning of the industry. Since its introduction in April 1997, DVD has become the main home video system in a remarkably short period of time. We introduce a new product level data-set on DVD players and titles and show that prices of DVD players have dropped and their quality has improved dramatically. We also show that there has been a positive feedback loop between the sales of DVD players and the number of DVD titles on the aggregate level.; Chapter 2 uses a structural estimation model to investigate indirect network effects in the U.S. DVD market. We use a nested logit model of a differentiated products market with an explicit structure of supply and demand. In the model, consumers first choose whether to buy a DVD player or a VCR and then a specific model. We hypothesize that the utility a consumer receives from owning a DVD player increases in the number of DVD movie titles. In return, an increase in the sales of DVD players leads to a greater demand for DVD titles. Our results show that a 1% increase in the number of DVD titles raises the demand for DVD players by 0.68%. On the other hand, a 1% increase in the installed base of DVD players leads to a 0.18% increase in the number of titles released on DVD.; Chapter 3 develops a structural model of dynamic demand to take into account the durability of a product and the inter-temporal purchasing decision of consumers. We build a model where consumers with heterogeneous preference choose not only what to buy but, also when to buy. Using the dataset on the U.S. DVD market, we show, that high-valuation consumers are willing to pay significantly more than low-valuation consumers and that the share of consumers with a high willingness to pay is about 26%. We also compare the estimation results with those of alternative models and interpret the differences.