Thursday, March 18, 2010
Posted by D. Daniel Sokol
I do not have a Wii or Sony Playstation. Nevertheless, I did read the interesting paper Vertical Integration, Exclusivity and Game Sales Performance in the U.S. Video Game Industry by Ricard Gil (UC Santa Cruz - Econ)and Frederic Warzynski (Aarhus School of Business).
ABSTRACT: This paper empirically investigates the relation between vertical integration and video game performance in the U.S. video game industry. For this purpose, we use a widely used data set from NPD on video game montly sales from October 2000 to October 2007. We complement these data with handly collected information on video game developers for all games in the sample and the timing of all mergers and acquisitions during that period. By doing this, we are able to separate vertically integrated games from those that are just exclusive to a platform First, we show that vertically integrated games produce higher revenues, sell more units and sell at higher prices than independent games. Second, we explore the causal effect of vertical integration and find that, for the average integrated game, most of the difference in performance comes from better release period and marketing strategies that soften competition. By default, v! ertical integration does not seem to have an effect on the quality of video game production. We also find that exclusivity is associated with lower demand.