Comparison of the Strength of Three Types of Network Effects on Video Game Console Platforms in Japan

Abstract

With competition in the business ecosystem gaining attention, the video game industry has become known as a typical example and appropriate subject for examining strategies in this field. However, existing researches have not yet adequately addressed the question of how platform companies gain a competitive advantage by combining multiple types of network effects. We selected four Japanese video game console platforms to compare the strength of the three types of network effects on hardware sales share among the same generation using the Instrumental Variable method. As a result, it was found that the indirect network effect of software may appear differently between which due to the variety of complementary goods and which due to the competitiveness of the complementary goods. It was also confirmed that the direct network effect of hardware works stably on all models. The recognition that these three types of network effects appear differently by the platforms will provide practical decision-making material for platform companies' strategies in promoting the development of the ecosystem.