Technology and demand: an empirical analysis of the video game industry

There is a strong bond between technology and video-games. This relation is reflected in many economic aspects of the industry, from the network effects to the cyclical nature of the market. This paper investigates in which way technological changes affect video games and the demand for these goods. In order to do so, this study takes into account the best-selling software products of the last two generations of console video games. In the first stage of data analysis the effect of different technological variables on the genre of best-selling video games was investigated through a series of logistic regressions. This study looked in particular at online multiplayer capabilities and at the level of graphic simulation. The results showed that shooter and fighting games are the only genres positively correlated with both graphic simulation and online multiplayer. In the second phase of the analysis a demand model was employed in order to identify the drivers of revenues. The results showed that the genres that put online gameplay at their core represent the most successful type of videogames in the current generation. Differently from the last generation, reviews and age of the players are not significant anymore to determine the success of a product.