Vertical Integration, Exclusivity and Game Sales Performance in the U.S. Video Game Industry Ricard Gil and Frederic Warzynski∗† October 2013 Abstract This paper empirically investigates the relation between vertical integration and video game per- formance in the US video game industry. For this purpose, we use a widely used data set on video game monthly sales from October 2000 to October 2007. We complement these data with information on video game developers and the timing of all mergers and acquisitions during that period allowing us to separate vertically integrated games from those independent games exclusive to a platform. First, we show that vertically integrated games are associated with higher sales and higher prices than in- dependent games. Second, we explore whether the link between vertical integration and performance in this industry is due to selection or value added. Our results suggest that most of the difference in performance is due to value added from better release strategies and selection from ex-ante differ- ences in video game quality. In our sample of games, post-release marketing strategies do not seem to add value to vertically integrated games. We also find that platform-exclusive independent games are associated with lower demand and higher prices. ∗Ricard Gil is an Assistant Professor at The Johns Hopkins Carey Business School and Frederic Warzynski is a Professor at Aarhus University. Corresponding author’s email:
[email protected]. †We would like to thank comments from Robin Lee, Shane Greenstein, Robert Gibbons and Pablo Spiller as well as from seminar participants at UC-Santa Cruz, CUNEF, Aarhus University,DePaulUniversity,UC-Davis,IIOC-Vancouver, ISNIE-Stirling, the 2nd Meeting of the Danish Microeconometric Network, Bates College, MIT Sloan, University of Kansas, Stony Brook, Columbia Business School, the 6th Annual Organizational Economics Workshop at the University of Sydney and the Conference on the Law and Economics of Organizations at Haas Berkeley in honor of Oliver Williamson.