The power of an installed base to combat lifecycle decline: The case of video games

Declining demand in later stages of product lifecycles challenges managers. Especially in system markets, content providers must decide whether to publish new content in late lifecycle stages or wait for the next system generation. This study investigates whether content providers can compensate for declines in demand for a system by relying on the benefits offered by a large installed base in later lifecycle stages. Drawing on extensive market data from the video game industry – an underresearched but economically and culturally relevant category of the entertainment sector – this study examines ways to achieve such compensation. The data analyses show a negative association between the age of a system generation and content sales. However, an online multiplayer feature can counteract this negative effect by exploiting the large installed base and providing consumers with additional social value through direct network effects. These findings should help managers position their products more successfully in the late lifecycle stages of a particular system generation.

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