Intertemporal Demand Spillover Effects on Video Game Platforms

Abstract

Many platform strategies focus on indirect network effects between sellers through platform expansion. In this paper, we show sellers on the console video game platform generate a positive intertemporal spillover effect and expand the demand for other sellers, holding the set of platform adopters fixed. We propose a novel identification strategy that leverages exogenous variation in the release timing of games exclusively available on a console platform, and examine how this variation affects the sales of games available on both platforms. We find a sizable intertemporal demand spillover effect between games: A 1% increase in total copies sold on a platform leads to a 0.153% increase in the sales of other games in the next month (i.e., an elasticity of 0.153). Additional analysis suggests this demand spillover effect is reminiscent of habit formation on the consumer side, in that past purchases keep end users active on the platform. Our finding provides a potential explanation for recent platform sales events and subscription services that provide free games to consumers every month. This paper was accepted by Eric Anderson, marketing.

Halo or Cannibalization? How New Software Entrants Impact Sales of Incumbent Software in Platform Markets

“…Our setting is generalizable to other networked markets and is ideal for exploring our research questions for several reasons. First, studies in marketing (e.g., Binken and Stremersch 2009; Landsman and Stremersch 2011) and related fields (e.g., Clements and Ohashi 2005; Haviv, Huang, and Li 2020) use video game data to test platform market theories because video games are “a classic example of a high-tech networked market” (Gretz and Basuroy 2013, p. 284). Second, managing product introductions is an important decision in networked industries (Lee and O’Connor 2003), especially for video game firms (Binken and Stremersch 2009).…”

COVID-19 and Digital Resilience: Evidence from Uber Eats

“…Transactions Platform, Reshef (2019) finds that entry of new firms increases incumbent performance, especially for high-quality incumbents. Similarly, in the video game industry, Haviv et al (2019) find evidence that an increase in sales of platform-exclusive games increases the performance of games in other genres on the platform. However, different business models across platforms may shape these effects extant research has yet to explore how a contraction in competitor supply, such as the one witnessed in our empirical setting, may affect demand.…”

“…By showing that digital channels can serve as a substitute when traditional brick-and-mortar settings are disrupted, we contribute to the body of research that examines cannibalization and opportunities from alternative digital distribution channels (Chen et al, 2019a;Danaher et al, 2010;Deleersnyder et al, 2002;Smith and Telang, 2009). Further, by exploring the moderating effect of competition on performance on the digital platform, we add to a body of literature that explores substitution and spillovers in the sharing economy (Sundararajan, 2016) and on digital platform markets (Haviv, Huang, and Li, 2020;Reshef, 2019). Lastly, by highlighting the dual effects of market expansion and business stealing, we contribute to literature that discusses the tension between strategies that are optimal for the platform and strategies that are optimal for complementors hosted on the platform (e.g., Filippas, Jagabathula, and Sundararajan, 2019;Venkatraman and Lee, 2004;Zhu and Liu, 2018).…”

The implications of supplier encroachmentviaan online platform

“…The second research stream is related to the literature on platform-based markets, which is grounded in the literature on industrial economics and two-sided markets [28,29]. Although there is a rich body of work on platform economies and two-sided markets -beginning with Rochet and Tirole [13] -prior work on online retail platforms has primarily focused on platform competition [14][15][16], pricing structure [5,[17][18][19] and strategic decisions by platforms beyond pricing [3,[20][21][22]. They have focused less on the interaction between online retail platforms and offline traditional retail channels.…”

“…Although there has been a rich body of work on platform-based markets, beginning with Rochet and Tirole [13], prior work in this area has primarily focused on platform competition [14][15][16], pricing structure [5,[17][18][19] and strategic decisions [3,[20][21][22] and less on the interaction between online retail platforms and offline traditional retail channels. This interaction poses several questions that differ from those around supplier-owned channels and traditional retail channels.…”