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Abstract

We investigate the short- and long-run effects of prices and software availability on the category-level diffusion of 32/64-bit video-game consoles in the USA. We adopt an estimation framework that allows for a flexible intrinsic growth pattern for the hardware consoles, and uses instrumental variables to control for the potential endogeneity of prices. We find significant long-term effects of prices and software availability on sales. We find that using a non-parametric hazard specification is important: imposing parametric forms results in elasticities that are up to 30% smaller. We use these results to derive implications for marketing policies over the life cycle of the industry. Copyright © 2009 John Wiley & Sons, Ltd.