Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 09-19: Vertical Integration, Exclusivity and Game Sales Performance in the U.S. Video Game Industry

Ricard Gil and Frederic Warzynski ()
Additional contact information
Ricard Gil: Economics Department, Postal: University of California Santa Cruz, USA
Frederic Warzynski: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Aarhus University, Department of Economics, Frichshuset Hermodsvej 22, 8230 Åbyhøj , Denmark

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, vertical 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.

Keywords: No; keywords

JEL-codes: A10

47 pages, January 10, 2009

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