Measuring marketing‐mix effects in the 32/64 bit video‐game console market

Abstract

SUMMARYWe investigate the short-and long-run effects of prices and software availability on the category-level diffusion of 32/64-bit video-game consoles in the USA. We adopt an estimation framework that allows for a flexible intrinsic growth pattern for the hardware consoles, and uses instrumental variables to control for the potential endogeneity of prices. We find significant long-term effects of prices and software availability on sales. We find that using a non-parametric hazard specification is important: imposing parametric forms results in elasticities that are up to 30% smaller. We use these results to derive implications for marketing policies over the life cycle of the industry.

Role of complementarities in technology adoption: The case of DVD players

“…A one-time 1% increase in current DVD player prices has a much larger effect on the other hand, decreasing current month's sales on average by 5.8%. This larger effect from a temporary price change is consistent with findings from other industries (Erdem et al 2003and Chintagunta et al 2007, Gowrisankaran and Rysman 2009. Also interestingly, these one-time price elasticites decline over time as prices decline and the potential market for first-time product adoption shrinks.…”

“…The average monthly one-time price elasticities are −7.56 and −7.33 for the first and second quarters of 2000 respectively, while they are as low as −4.29 and −4.06 for the first and second quarters of 2001. Chintagunta et al (2007) find a very similar pattern for the videogame console market. They estimate an average price elasticity of −3.68 across 89 months, while earlier periods exhibit significantly higher elasticities such as −9.3 (month 1-5), −6.5 (months 6-11), −5.06 (month 12-17), −4.4 (month 18-23) with elasticities as low as −1.7 for the latest periods (month 84-89).…”

“…Given the simultaneous nature of the DVD player adoption decision and the release of content on DVD at a given time, we account for potential endogeneity of 3 Related studies that have used only time-series identification include Gandal et al (2000), Dranove and Gandal (2003), Ohashi (2003), Park(2004), Nair et al (2004), Shankar and Bayus (2003), Clements and Ohashi (2004), Chintagunta et al (2007), Dube et al (2010), Lee (2010). 4 Studies on network effects that utilize only cross-sectional data include Goolsbee and Klenow (2002), Rysman (2004), Augereau et al (2006) and Ryan and Tucker (2008).…”

Platform adoption in system markets: The roles of preference heterogeneity and consumer expectations

“…First, empirical research on system markets has focused on detecting the indirect network effects of various entertainment products, including DVDs (Inceoglu & Park, 2011), computer hardware and software (Frels, Shervani, & Srivastava, 2003), CDs (Basu, Mazumdar, & Raj, 2003), VCRs (Park, 2004), and home video games (Chintagunta, Nair, & Sukumar, 2009). To date, direct network effects have been rarely considered (e.g.…”

Messung und Wirkung von Netzeffekten in der ökonomischen Forschung

“…Zusätzlich zeigen Shankar u. Bayus (2003), dass Asymmetrien in der Wirkung der Netzgröße auf die Marketingelastizitäten zugunsten von Nintendo gegenüber Sega vorliegen, die sie als Netzstärke interpretieren. Chintagunta et al (2007) und Clements u. Ohashi (2005 untersuchen anhand des Marktes von Spielkonsolen der dritten Generation und den drei Herstellern Nintendo, Sega und Sony, welche Auswirkungen Preis und Angebot an Komplementärprodukten in Abhängigkeit vom Produktlebenszyklus haben. Beide haben eine signifikant positive Wirkung.…”