Avery Haviv, Yufeng Huang, Nan Li

Management Science, Vol. 49, No. 10, 4359-4919

Recommend reason

Platforms usually focus on expanding itself by getting more sellers and buyers on board. This paper shows that sellers on the console video game platform can create new demand for other sellers in the future through a positive intertemporal demand spillover effect, holding the platform expansion fixed. Using a novel identification strategy that leverages games exclusive to one platform, this research finds a sizable positive intertemporal spillover effect. The findings are consistent with the recent trend in the industry shifting towards major sales events and subscription services with free games.

About the author

Avery Haviv, Simon School of Business, University of Rochester

Yufeng Huang, Simon School of Business, University of Rochester

Nan Li, School of Economics and Management, Tongji University

Keywords

Demand spillover effect, Platform strategy, Natural experiment, Video game

Brief introduction

Many platform strategies focus on indirect network effects between sellers through platform expansion. In this paper, we show sellers on the console video game platform generate a positive intertemporal spillover effect and expand the demand for other sellers, holding the set of platform adopters fixed. We propose a novel identification strategy that leverages exogenous variation in the release timing of games exclusively available on a console platform, and examine how this variation affects the sales of games available on both platforms.

We find a sizable intertemporal demand spillover effect between games: A 1% increase in total copies sold on a platform leads to a 0.153% increase in the sales of other games in the next month (i.e., an elasticity of 0.153). Additional analysis suggests this demand spillover effect is reminiscent of habit formation on the consumer side, in that past purchases keep end users active on the platform. Our finding provides a potential explanation for recent platform sales events and subscription services that provide free games to consumers every month.