Network externalities in online video games: an empirical analysis utilizing online product ratings
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Network externalities in online video games: an empirical analysis utilizing online product ratings Yong Liu 1 & Enping Shirley Mai 2 & Jun Yang 3
Published online: 1 September 2015 # Springer Science+Business Media New York 2015
Abstract Video games have become a major contributor to the USA and global economy. This paper studies network externalities in the online video game industry. Even though network externalities are recognized as a major driver of new product diffusion, testing the existence and the impact of network externalities at the individual level has been a challenge. By employing online product ratings in the estimation, we find that for online video games: (1) a larger installed base generates higher product ratings by individuals; (2) network externalities exhibit nonlinear dynamics over product life cycle—nonsignificant initially, highly significant next, and less significant in the later period; and (3) network externalities differ across consumer segments: the impact of the installed base is stronger on lessexperienced consumers than on more-experienced ones. Our results suggest that network externalities should be treated as a dynamic rather than a timeinvariant phenomenon and heterogeneous rather than homogeneous across consumers. Keywords Network externalities . Network effects . Online product ratings . User reviews . Video games . Massively multiplayer online role-playing games
* Yong Liu [email protected] 1
Department of Marketing, Eller College of Management, The University of Arizona, Tucson, AZ 85721, USA
2
Department of Marketing and Supply Chain Management, East Carolina University, Greenville, NC 27858, USA
3
Discipline of Marketing, School of Business Administration, The University of Houston Victoria, 14000 University Blvd, Sugar Land, TX 77479, USA
680
Mark Lett (2015) 26:679–690
1 Introduction Enabled by digital revolution and consumers’ growing demand for media and entertainment products, the video game industry has become an important contributor to the US economy. 1 As DEF Intelligence (2014) reports, video game revenue is expected to grow from $68 billion in 2013 to $96 billion in 2018, at a growth rate unmatched by many other sectors. 2 Among the most rapidly growing are online games; according to a study by NPD group, more than 72 % of US gamers claimed that they played some kind of online game in 2013 (Needleman and FitzGerald 2015). Yet, despite these favorable market conditions, many video games fail to attract players. While games such as World of Warcraft and Minecraft have achieved extraordinary market success, others such as SimCity and Star Wars: The Old Republic have not. What are the key factors that contribute to the success (or failure) of online games? Besides product characteristics that game developers can control, what are the market-level factors that game developers and distributors must understand and try to manage? In this paper, we examine the effects of network externalities in the online video game industry. Network externalities exi
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