Value co-creation in the video game industry

Graziano Abrate, Anna Menozzi

Abstract


Purpose. The process of value creation is rapidly shifting from a product- and firm-centric view to personalized consumer experiences. Networked and active consumers are increasingly co-creating value with the firm. This paper aims at contributing to the evidence on unpaid competing complementors and on network effects by asking how a form of creation that is user-driven and not motivated by sales incentives, impacts on producers’ sales. The video game industry, where the so-called “modders” provide free contents (“mods”) that improve the video game experience, provides an excellent field of study.

Methodology. The video games demand function and the supply of new mods, in the retail video game market, are modelled. A system of equations is estimated by applying an instrumental-variables approach to account for possible endogeneity biases and uncover causal relationship.

Findings. The creation of new mods increases video game retail sales. The more popular is a video game title, the higher are the sales. The video game demand elasticity is attenuated by the continuous creation of new mods.

Practical implications This paper shows that direct and indirect network effects between video games and mods take place even with unpaid competing complementors and that (even) traditional distribution outlets can benefit from them.

Originality/value. The paper quantifies the effect that the creation of mods exerts on sales and on price elasticity. Weekly (instead of monthly) time periods provide a period short enough to capture the short development cycles of mods and small and rapid responses of user demand.


Keywords


co-creation; network effects; video games; mods; retailing

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References


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