Entry, Innovation and Long Term Evolution of the Video Game Industry

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Academic Year 2010/2011

Entry, Innovation and Long-Term Evolution of the Video Game Industry

Group 7: Yuliya Chosik 1369180 Bernardo Contri 1153113

Index Introduction………………………………………………………….. Data Sources………………………………………………………….. Historical Evolution of the Videogame Industry…………………… First Generation………………………………………………... Second Generation……………………………………………... Third Generation……………………………………………….. 3 4 4 5 5 5

Fourth Generation………………………………………………. 6 Fifth Generation………………………………………………… 6 Sixth Generation………………………………………………... 7 Seventh Generation……………………………………………... 7 Schumpeter Mark I and II Periods…………………………………... 9 Schumpeter Mark I……………………………………………… 9 Schumpeter Mark II…………………………………….............. 10 Christensen’s “Disruptive Innovation Model”………………………. 11 Market Evolution………………………………………………………. 12 Conclusion……………………………………………………………… 15 References……………………………………………………………… 16

 

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INTRODUCTION This paper aims to describe and analyze the dynamics of entry, innovation and long-term evolution of the videogame industry. Moreover, we will examine why and under what circumstances financially strong, customer-sensitive, technologically deep and rationally managed organizations failed to keep their leading positions on the market and gave way to new emerging firms. Finally, we want to demonstrate that the videogame industry is not mature yet, in contrast with the theory that says that an industry usually reaches its maturity phase 20 or 30 years after its birth (Utterback Model)1. We believe this subject to be worth of attention for different reasons. Firstly, the videogame industry showed a relatively quick evolution from a small division of the game industry, which emerged in 1972, to a multi-billion business in 2010 due to quick changes in the market structure, its concentration and tight connections with the other segments of consumer electronics. Secondly, the fact that it is characterized by waves of industry standards that repeatedly wipe out the previous ones, the company that successfully introduces the new standard becomes the leader and the other players have to follow it. Such market specificities directly affect the way companies compete among each other. Finally, we believe that the importance of technological innovation, complementarity with other related products, installed base and the high level of externalities, draw all together the picture of a highly interesting industry to examine. While analyzing the videogame business, we would like to point out the focus of our research specifically on the regular console videogame market that is, on the one hand, purely devoted to gaming, and, on another, still shows all those interesting connections to other branches of the consumer electronics, such as computers or televisions. There is of course a computer videogame industry, that is highly important and highly lucrative, but we found that it was affected by too many factors related to the computer market. Also, there is a portable console videogame industry, concerning products such as the Game Boy or the PSP, but it’s a market which shows relatively low strategic and technological competition, not to mention the fact that in these last few years it has been getting closer and closer to the smart phone market. While assessing the industry, we relied on the work of two authors. On one hand, the differentiation made by Joseph Schumpeter of the different regimes helped us to divide the industry into two historical periods, a Schumpeter Mark I and a Schumpeter Mark II, with differences in terms of concentration, number of entries and exits and in terms of intensity of  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 Klepper and Graddy, (1990); Klepper and Miller,...
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