Measuring Marketing-Mix Effects in the Video-Game Console Market

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 US. 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.