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Diffusion of a new product under network effects: the US DVD market

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İnceoğlu, Fırat and Park, Minsoo (2011) Diffusion of a new product under network effects: the US DVD market. Applied Economics, 43 (30). pp. 4803-4815. ISSN 0003-6846 (Print) 1466-4283 (Online)

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Abstract

We formulate a model that captures the inter-dependence between hardware demand and software supply - indirect network effect - in the DVD industry. The identification of the network effect comes from the difference in software availability across two different formats: VHS and DVD. We find that a 1% increase in the number of DVD titles raises the demand for DVD players by 0.87%. Simultaneously, a 1% increase in video player ownership leads to a 0.14% increase in the variety of video titles. Our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues.
Item Type: Article
Uncontrolled Keywords: Network effects; DVD; Discrete Choice Models
Subjects: H Social Sciences > HB Economic Theory > HB135-147 Mathematical economics. Quantitative methods
H Social Sciences > HD Industries. Land use. Labor > HD0045-45.2 Technological innovations
Divisions: Faculty of Arts and Social Sciences > Academic programs > Economics
Faculty of Arts and Social Sciences
Depositing User: Fırat İnceoğlu
Date Deposited: 05 Apr 2012 11:25
Last Modified: 26 Apr 2022 08:55
URI: https://research.sabanciuniv.edu/id/eprint/18962

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