This paper investigates the scope of indirect network effects in the
home video game industry. We argue that the increasing prevalence of
non-exclusive software gives rise to indirect network effects that exist
between users of competing and incompatible hardware platforms. This is
because software non-exclusivity, like hardware compatibility, allows a
software firm to sell to a market broader than a single platform's
installed base, leading to a dependence of any particular platform's
software on all firms' installed bases. We look for evidence of these
market-wide network effects by estimating a model of hardware demand and
software supply. Our software supply equation allows the supply of games
for a particular platform to depend not only on the installed base of
that platform, but also on the installed base of competing platforms.
Our results indicate the presence of both a platform-specific network
effect and -in recent years- a cross-platform (or generation-wide)
network effect. Our finding that the scope of indirect network effects
in this industry has widened suggests one reason that this market, which
is often cited as a canonical example of one with strong indirect
network effects, is no longer dominated by a single platform