Study On The Market Structure Of Video Game Industry Based On Two-Sided Markets Theory

There are lots of markets nowadays in which two or more groups of agents interact via intermediaries, which face demands from more than two different types of market and profit from coordinating all the markets. To name a few, Alibaba in E-business, credit cards in bank system and shopping malls. All of these are known as two-sided markets.This dissertation focuses on Video Game industry, where console firms perform as platforms and the two sides of the market are represented by the game players and game developers. Such platforms are designed to maximize its profits and promote the interaction between players and developers. On the basis of available literature, this dissertation first comprehensively summarizes primary concepts and important characteristics, and then provides a detailed description of video game market, including the international market, major players and business model. In the forth chapter, based on models of two-sided markets, the main theme is to compare two polar strategies for console firms:"open platform"——enabling affiliated developers to sell directly to affiliated players, and"closed platform"——buying from developers and reselling to players. The major findings are:(1) In a monopoly market, closed platform is proved to be more profitable when economics of scale exists or in the early age of industry.(2) In an oligopoly market, when changing the platform between open and close is costless, firms may prefer to commit to keeping their platforms closed. But either firm can profit more from changing closed to open, based on the expectation that its competitor would stay close. (3) Compared with closed mode, Console firms offer a lower price to player in the open mode because open platforms may lead to an intensified competition of consumers.