Vertical Integration, Exclusivity, and Game Sales Performance in the US Video Game Industry

Abstract

This paper empirically investigates the relation between vertical\nintegration and video game performance in the US video game industry.\nFor this purpose, we use a widely used data set from NPD on video game\nmonthly sales from October 2000 to October 2007. We complement these\ndata with handly collected information on video game developers for all\ngames in the sample and the timing of all mergers and acquisitions\nduring that period. By doing this, we are able to separate vertically\nintegrated games from those that are just exclusive to a platform.\nFirst, we show that vertically integrated games produce higher revenues\nand sell more units at higher prices than independent games. Second, we\nexplore the causal effect of vertical integration and find that, for the\naverage integrated game, most of the difference in performance comes\nfrom better release and marketing strategies that soften competition and\nnot from ex-ante differences in video game quality. We also find that\nexclusivity is associated with lower demand. Our estimates suggest that\nconsumers value vertical integration features in their games between 4\nand 34 dollars per game.