Failure to Launch in Two-Sided Markets: A Study of the U.S. Video Game Market

Zhou, Yiyi (2012): Failure to Launch in Two-Sided Markets: A Study of the U.S. Video Game Market.

Abstract

In the dynamic two-sided market environment, overpricing one side of the market not only discourages demand on that side but also discourages participation on the other side. Over time, this process can lead to a death spiral. This paper develops a dynamic structural model of the video game market to study launch failures in two-sided markets. The paper models consumers’ purchase decisions for hardware platforms and affiliated software products and software firms’ entry and pricing decisions. This paper also develops a Bayesian Markov Chain Monte Carlo approach to estimate dynamic structural models. The results of the counterfactual simulations show that a failed platform could have survived if it had lowered its hardware prices and that it could not have walked out of the death spiral if it had subsidized software entry.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bayesian Markov Chain Monte Carlo (MCMC) Estimation, Failure to Launch, Two-Sided Market, Indirect Network Effect, Forward-Looking Consumer, Video Game Market
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L68 - Appliances ; Furniture ; Other Consumer Durables; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C11 - Bayesian Analysis: General

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