Console Price and Software Availability in the Home Video Game Industry

Using hedonic results from a unique data set covering the U.S. home video game industry (1976-2003) the interaction between software provision and console price is analyzed. Increased software provision negatively effects console price. This is contrary to many empirical pricing studies in the network effects literature: greater software provision makes hardware more valuable and this should be reflected by increased hardware price. However, the main result from the paper is consistent with the recent theoretical literature on two-sided markets. Also, findings suggest the two-sided pricing strategy employed by hardware firms is dynamic. The percent of price decrease accredited to game provision decreases over time