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

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

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Official URL: http://dx.doi.org/10.1080/00036846.2010.498358

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
ID Code:18962
Deposited By:Fırat İnceoğlu
Deposited On:05 Apr 2012 11:25
Last Modified:05 Apr 2012 11:25

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