Blue-ray DVD, Product Differentiation and Competition in the Home Video Game Console Market (pdf)   (Job Market Paper)

SONY launched its latest PlayStation 3 game console in 2006 and integrated Blue-ray DVD playback function in it. This feature is believed to contribute to PlayStation 3's high price and weak sales performance. At the same time, differentiations in hardware attributes among the latest-generation consoles also contribute to consoles' different prices and therefore their different sales performances. In this paper, I present a structural model to quantify the effect of Blue-ray DVD as well as the effect of product differentiation on console manufacturers' profitability. The estimation and simulation results show that (1) consumers are willing to pay an extra premium to SONY's Blue-ray DVD function, but they are also sensitive to console prices; (2) Blue-ray DVD function adds significant costs to PlayStation 3; (3) in terms of profitability to SONY, the value of Blue-ray DVD is mostly offset by its added costs; (4) PlayStation 3's weak sales performance is partially caused by the competition from the same-generation, less-advanced but low-priced competitors.

Empirical Analysis of Strategic Interactions in Home Video Game Industry      (working in progress)

Timing and platform (video game consoles) choices are important for independent game publishers when launching their new game titles, since (1) on average, a particular game title achieves about 50% of its total life-cycle sales within the first three months since launched; (2) consoles from different manufacturers are not mutually compatible. Each publisher therefore needs to consider not only the existed market structure but also other publishers' launching strategies when deciding the timing and platform availability of its every new game titles. In this paper, I set up and estimate an empirical model of static games of incomplete information to study the strategic interactions between independent home video game publishers in terms of new game launching. In addition, I also simulate the model to find all possible equilibria of the model to study the effects of console manufacturer game titles on the independent titles.

Estimating Demand for Home Video Game Console: A Regression Discontinuity Design Approach, with Wei Tan                                                                   (working paper)

Using the data set of home video game console sales in U.S. between 2005 and 2008, we estimate the demand for game consoles using a regression discontinuity design (RDD) method. Our method exploits a unique feature of the price changes in the industry during our sample period, i.e. prices are cut periodically but remain generally unchanged between the two consecutive cuts. This discontinuity in the price changes allows us to obtain a reliable estimate of the effect of the prices on console demand semiparametrically and without using instrumental variables. We find that consumers' demand for video consoles is elastic, and the elasticities are between -1.11 and -5.40. In addition, we compare our results to other's using the standard IV approach, and find that our estimated elasticities are similar to the existing works.