Essays on the Empirical Analysis of U.S. Home Video Game Market
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This dissertation focuses on the empirical analysis of U.S. home video game market and contains three essays.The first essay investigates one aspect of competition among the console manufacturers. SONY launched its latest PlayStation 3 game console in 2006 and integrated Blue-ray DVD playback function in it. This feature is believed to contribute to PlayStation 3's high price and weak sales performance. At the same time, differentiations in hardware attributes among the latest-generation consoles also contribute to consoles' different prices and therefore their different sales performances. In this essay, I present a structural model to quantify the effect of Blue-ray DVD as well as the effect of product differentiation on console manufacturers' profitability. The estimation and simulation results show that (1) consumers are willing to pay an extra premium to SONY's Blue-ray DVD function, but they are also sensitive to console prices; (2) Blue-ray DVD function adds significant costs to PlayStation 3; (3) in terms of profitability to SONY, the value of Blue-ray DVD is mostly offset by its added costs; (4) PlayStation 3's weak sales performance is partially caused by the competition from the same-generation, less-advanced but low-priced competitors.The second essay studies the complementary good side in the U.S. video game market. The central question it studies is that whether exclusive game titles have higher sales than non-exclusive game titles. This question is important for us to better understand the incentives for both platform (game consoles) and complements (video games) to adopt strategies about exclusion, multi-homing, and vertical integration. I use a unique and rich dataset to compare the sales number of exclusive and non-exclusive video game titles sold in U.S. between Nov. 2006 to Dec. 2008. I also adopt various approaches to deal with possible selection biases in the estimation caused by unobservable product characteristics and potential game developer selections into platforms. The estimation results show that exclusive titles do have higher sales per platform after controlling various observed and unobserved game attributes. And further analysis show that such premium on exclusivity has different implications in terms of platform location choice for top-selling and average-selling game titles, respectively. This is mainly due to the presence of ``porting'' costs for non-exclusive titles.In the third essay, using the data set of home video game console sales in U.S. between 2005 and 2008, we estimate the demand for game consoles using a regression discontinuity design (RDD) method. Our method exploits a unique feature of the price changes in the industry during our sample period, i.e. prices are cut periodically but remain generally unchanged between the two consecutive cuts. This discontinuity in the price changes allows us to obtain a reliable estimate of the effect of the prices on consumersî console demand semiparametrically and without using instrumental variables. We find that consumer's demand for video consoles is elastic, and the elasticities are between. 1.11 and. 5.40. In addition, we compare our results to other's using the standard IV approach, and find that our estimated elasticities are similar to the existing works.