A Theoretical and Empirical Study of Product Development and Distribution in the Japanese Video Game industry

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The purpose of this research is to investigate product development and distribution in the Japanese home video game industry both theoretically and empirically.(1) A platform competition model in markets of system products composed of hardware and complementary software is analyzed, with a specific focus on exclusive contracting. When hardware products are strongly differentiated, or when consumers value the marginal benefit of additional software variety highly, we find that, in equilibrium, hardware firms will engage in exclusive contracting of software development. This finding is strongly supported by our empirical results in the Japanese home video game industry, dominated by Nintendo from 1984 to 1994.(2) Empirical studies are conducted to examine the factors determining the developers' choices of video game platforms from 1994 to 1996 by using the mixed logit model.(3) The competitive and cooperative strategies pursued by game software firms facing the problem of intellectual property rights violation are analyzed.