A Multigeneration Diffusion Model for IT-Intensive Game Consoles

The video game industry has attracted more and more attention not only from technology giants such as Microsoft but also from software developers and private investors. Information technology dictates how game console producers compete in the marketplace. Intensive IT competition in each console generation has shifted the market balance. Competitors jockey to position themselves as the first-mover within a generation or to wait and enter the market with cheaper and more advanced technologies. To capture the characteristics of IT-intensive products, we propose a multigeneration diffusion model that captures both cannibalization and competition effects. We apply the model to analyze game console diffusion with real shipment data for three game consoles from two companies: Sony and Microsoft. We analyze two scenarios: one with only Sony¡¯s products, and one with both companies¡¯ products. We find that the cannibalization between Sony¡¯s products is minimal, and Microsoft maintains a strong competitive edge that has challenged Sony¡¯s market position. The results also explain how Sony has maintained its position as the market leader over the last two generations. This research sheds light on the nature of an IT-intensive game console competition between companies and generations